The hedging role of US and Chinese stock markets against economic and trade policy uncertainty: lessons from recent turbulences
China Finance Review International
ISSN: 2044-1398
Article publication date: 7 December 2022
Issue publication date: 9 August 2023
Abstract
Purpose
This study analyses the impact of economic and trade policy uncertainty on US and Chinese stock markets. Also, this study examines the hedge and safe-haven properties of US and China stocks against both US and Chinese economic and trade policy uncertainty.
Design/methodology/approach
To achieve the desired goals, the authors employ Dynamic Conditional Correlation through Glosten et al. (1993) model based on the Generalized Autoregressive Conditional Heteroscedasticity (DCC-GJR-GARCH (1, 1)) and Quantile cross-spectral (QS) models. The study uses monthly observations spanning from March 2010 to June 2022.
Findings
This study evidence that the economic and trade policy uncertainty between USA and China is extremely sensitive and has high volatility clustering effects on DJChina88 and DJUS, respectively. Conversely, against the Chinese economic and trade policy uncertainty, the US stock market indexes show both hedging properties across the period and safe-haven during COVID-19 and Russia–Ukraine crises. In contrast, among the Chinese stock markets, only DJShenzhen and DJShanghai stock indices might provide strong hedging and safe-haven properties against the US economic and trade policy uncertainties; however, DJShenzhen (DJChina88) stock shows weak hedge and safe-haven properties (hedging benefits) against Chinese trade policy uncertainty (CTPU) (Chinese economic policy uncertainty [CEPU]).
Practical implications
The findings have significant implications for investors, portfolio managers and regulators in hedging and making proper decisions under uncertain circumstances.
Originality/value
The study extends the literature on stock market performance to cover the economic and trade policy uncertainty by providing novel evidence during the recent COVID-19 and Russia–Ukraine invasion.
Keywords
Citation
Ghosh, S.K., Hossain, M.N. and Khatun, H. (2023), "The hedging role of US and Chinese stock markets against economic and trade policy uncertainty: lessons from recent turbulences", China Finance Review International, Vol. 13 No. 3, pp. 444-470. https://doi.org/10.1108/CFRI-08-2022-0154
Publisher
:Emerald Publishing Limited
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