Exchange Rate, Stock Price and Trade Volume in US-China Trade War during COVID-19: An Empirical Study
DOI:
https://doi.org/10.25115/eea.v39i8.5327Keywords:
Exchange rate, GARCH, Stock Market, Covid-19.Agencies:
There is no any agency funded for this research paperAbstract
This article aims to examine the influence of international trade wars on the majority of stock market operations, both directly and indirectly affected. The impact of the trade war on the exchange rates of the participating countries was similarly negative. This article seeks to trace the conversion standards' footprints in the United States, China, and India using several indexes such as the Shanghai Composite Index, Dow Jones index, and Nifty 50. The cost of closing down various indices on a daily basis, as well as the conversion standard upsides of the participating currencies, are all examined in this study. Furthermore, utilizing the OLS and GARCH models, this work provides insights into measuring the uncertainties about the impact of exchanging scale on financial exchange. According to the findings of OLS, changes in the swapping scale have had a minor impact on the daily closing costs of stock records in the individual countries. The conversion standard, on the other hand, has a major impact on trade volumes in all three stock markets. When compared to the SSE and DJI equities, the GARCH model predicts that the contingent shift will be less shocking, resulting in a smaller impact on Nifty trade volume. To replicate the impact of trade wars during the Covid-19 crisis, the final results imply that data from domestic and international financial transactions must include securities market transactions.
Downloads
References
Aliyu, S. U. R. (2010). Exchange rate volatility and export trade in Nigeria: An empirical investigation. Applied Financial Economics, 20(13), 1071–1084. https://doi.org/10.1080/09603101003724380
Amiti, M., Kong, S., & Weinstein, D. (2020). The Effect of the U.S.-China Trade War on U.S. Investment. In National Bureau of Economic Research. https://doi.org/10.3386/w27114
Aristotelous, K. (2001). Exchange-rate volatility, exchange-rate regime, and trade volume: Evidence from the UK-US export function (1889-1999). Economics Letters, 72(1), 87–94. https://doi.org/10.1016/S0165-1765(01)00414-1
Ba, S., & Shen, S. (2010). Research on China’s Export Structure to the US: Analysis Based on the US Economic Growth and Exchange Rate. Frontiers of Economics in China, 5(3), 339–355. https://doi.org/10.1007/s11459-010-0101-5
Baffigi, A., Bontempi, M. E., Felice, E., & Golinelli, R. (2015). The changing relationship between inflation and the economic cycle in Italy: 1861-2012. Explorations in Economic History, 56, 53–70. https://doi.org/10.1016/j.eeh.2014.06.002
Bahmani-Oskooee, M., & Ratha, A. (2008). Exchange rate sensitivity of US bilateral trade flows. Economic Systems, 32(2), 129–141. https://doi.org/10.1016/j.ecosys.2007.05.003
Bahmani-Oskooee, M., & Satawatananon, K. (2012). The impact of exchange rate volatility on commodity trade between the US and Thailand. International Review of Applied Economics, 26(4), 515–532. https://doi.org/10.1080/02692171.2011.619968
Bai, S., & Koong, K. S. (2018). Oil prices, stock returns, and exchange rates: Empirical evidence from China and the United States. North American Journal of Economics and Finance, 44, 12–33. https://doi.org/10.1016/j.najef.2017.10.013
Benedictow, A., & Boug, P. (2013). Trade liberalisation and exchange rate pass-through: The case of textiles and wearing apparels. Empirical Economics, 45(2), 757–788. https://doi.org/10.1007/s00181-012-0629-6
Benkovskis, K., & Wörz, J. (2016). Non-price competitiveness of exports from emerging countries. Empirical Economics, 51(2), 707–735. https://doi.org/10.1007/s00181-015-1015-y
Brahmi, M., & Adaala, A. (2014). Main indicators of the Tunisian banking system, inflation and financial context: possibility of inflation targets as a remedy, International Journal of Economics, Business and Finance, 2(6), 1–22. [online] http://www.ijebf.com/ IJEBF_Vol.%202,%20No.%206,%20September%202014/Main%20indicators.pdf.
Byrne, J. P., Darby, J., & MacDonald, R. (2008). US trade and exchange rate volatility: A real sectoral bilateral analysis. Journal of Macroeconomics, 30(1), 238–259. https://doi.org/10.1016/j.jmacro.2006.08.002
Carvalho, M., Azevedo, A., & Massuquetti, A. (2019). Emerging countries and the effects of the trade war between US and China. Economies, 7(2), 45. https://doi.org/10.3390/economies7020045
Chen, A. W., Chen, J., & Dondeti, V. R. (2020). The US-China trade war: dominance of trade or technology? Applied Economics Letters, 27(11), 904–909. https://doi.org/10.1080/13504851.2019.1646860
de Souza, R. M., Maciel, L. F. P., & Pizzinga, A. (2013). State space models for the exchange rate pass-through: Determinants and null/full pass-through hypotheses. Applied Economics, 45(36), 5062–5075. https://doi.org/10.1080/00036846.2013.815397
Evgenidis, A., Philippas, D., & Siriopoulos, C. (2019). Heterogeneous effects in the international transmission of the US monetary policy: a factor-augmented VAR perspective. Empirical Economics, 56(5), 1549–1579. https://doi.org/10.1007/s00181-018-1448-1
Fuchs, R., Alexander, P., Brown, C., Cossar, F., Henry, R. C., & Rounsevell, M. (2019). Why the US–China trade war spells disaster for the Amazon. Nature, 567(7749), 451–454. https://doi.org/10.1038/d41586-019-00896-2
Gómez-Zaldívar, M., Ventosa-Santaulària, D., & Wallace, F. H. (2013). The PPP hypothesis and structural breaks: The case of Mexico. Empirical Economics, 45(3), 1351–1359. https://doi.org/10.1007/s00181-012-0653-6
Gopinath, G., Boz, E., Casas, C., Díez, F. J., Gourinchas, P. O., & Plagborg-Møller, M. (2020). Dominant currency paradigm†. American Economic Review, 110(3), 677–719. https://doi.org/10.1257/aer.20171201
Goulard, S. (2020). The Impact of the US–China Trade War on the European Union. Global Journal of Emerging Market Economies, 12(1), 56–68. https://doi.org/10.1177/0974910119896642
He, R., Zhu, D., Chen, X., Cao, Y., Chen, Y., & Wang, X. (2019). How the trade barrier changes environmental costs of agricultural production: An implication derived from China’s demand for soybean caused by the US-China trade war. Journal of Cleaner Production, 227, 578–588. https://doi.org/10.1016/j.jclepro.2019.04.192
Holinski, N., & Vermeulen, R. (2012). The international wealth channel: A global error-correcting analysis. Empirical Economics, 43(3), 985–1010. https://doi.org/10.1007/s00181-011-0514-8
Hsing, Y. (2020). Exchange rate movements and aggregate output: The case of China. International Journal of Trade and Global Markets, 13(2), 135–143. https://doi.org/10.1504/IJTGM.2020.106758
Hu, M., Li, Y., Yang, J., & Chao, C. C. (2016). Actual intervention and verbal intervention in the Chinese RMB exchange rate. International Review of Economics and Finance, 43, 499–508. https://doi.org/10.1016/j.iref.2016.01.011
Hur, N. (2018). Historical and strategic concern over the US-China trade war: Will they be within the WTO? Journal of East Asia and International Law, 11(2), 393–411. https://doi.org/10.14330/jeail.2018.11.2.07
Iqbal, B. A., Rahman, N., & Elimimian, J. (2019). The future of global trade in the presence of the Sino-US trade war. Economic and Political Studies, 7(2), 217–231. https://doi.org/10.1080/20954816.2019.1595324
Kan, Y. Y. (2017). Why RMB should be more flexible. Journal of Financial Economic Policy, 9(2), 156–173. https://doi.org/10.1108/JFEP-08-2016-0058
Ketenci, N. (2016). The bilateral trade flows of the EU in the presence of structural breaks. Empirical Economics, 51(4), 1369–1398. https://doi.org/10.1007/s00181-015-1055-3
Kim, M. (2019). A real driver of US–China trade conflict. International Trade, Politics and Development, 3(1), 30–40. https://doi.org/10.1108/itpd-02-2019-003
Kwan, C. H. (2020). The China–US Trade War: Deep-Rooted Causes, Shifting Focus and Uncertain Prospects. Asian Economic Policy Review, 15(1), 55–72. https://doi.org/10.1111/aepr.12284
Law, K. P. J., Satoh, E., & Yoshimi, T. (2018). Exchange rate pass-through at the individual product level: Implications for financial market integration. North American Journal of Economics and Finance, 46, 261–271. https://doi.org/10.1016/j.najef.2018.04.011
Liu, K. (2018). Chinese Manufacturing in the Shadow of the China–US Trade War. Economic Affairs, 38(3), 307–324. https://doi.org/10.1111/ecaf.12308
Liu, T., & Woo, W. T. (2018). Understanding the U.S.-China Trade War. China Economic Journal, 11(3), 319–340. https://doi.org/10.1080/17538963.2018.1516256
Lobo, B. J. (2002). Large changes in major exchange rates: A chronicle of the 1990s. Applied Financial Economics, 12(11), 805–811. https://doi.org/10.1080/09603100110088157
Misra, R., & Choudhry, S. (2020). Trade War: Likely Impact on India. Foreign Trade Review, 55(1), 93–118. https://doi.org/10.1177/0015732519886793
Mohsen, B. (2013b) Efficiency of Monetary Policy Approach and Activist Rules, Economics and Management, 3(1), 7–17, University of Defence in Brno [online] https://www. unob.cz/en/Eam/Documents/EaM%203-2013.pdf#page=8.
Mohsen, B., & Laure, D. (2014). Extent of the world trade liberalization, dimensions and game rules: agreements of commercial involvement for the Tunisia, Economics and Management, 6(1), 6–15, University of Defence [online] https://www.unob.cz/eam/Documents/ EaM%201-2014.pdf#page=6.
Mohsen, B., & Sonia, Z. (2013a). Degré de Pertinence de la politique de ciblage d’Inflation: Aspect pratique de l’expérience des banques centrales des pays industrialisés et adaptabilité pour quelques pays en voie de développement et en transition, International Journal of Innovation and Applied Studies, 2(1), 21–33 [online] https://citeseerx.ist.psu.edu/ viewdoc/download?doi=10.1.1.1027.8459&rep=rep1&type=pdf.
Mohsen, B., & Sonia, Z. (2013b). Financial stability, target inflation as a monetary rule and concepts of money policy: implications for the optimal analysis, Acta Universitatis Danubius. OEconomica, 11(2), 2–93 [online] http://journals.univ-danubius.ro/index.php/ oeconomica/article/view/2728.
Mohsen, B., & Sonia, Z. (2013d). Transformations de l’économie mondiale, dernière crise financière et récessions économiques mondiales: mesures et précautions, Strategy and Development Review, 4(7), 23–71 [online] http://193.194.91.150:8080/en/ article/7908.
Moosa, I. (2011). On the U.S.-Chinese trade dispute. Journal of Post Keynesian Economics, 34(1), 85–111. https://doi.org/10.2753/PKE0160-3477340104
Moosa, N., Ramiah, V., Pham, H., & Watson, A. (2020). The origin of the US-China trade war. Applied Economics, 52(35), 3842–3857. https://doi.org/10.1080/00036846.2020.1722797
Mundell, R. (2012). The case for a world currency. Journal of Policy Modeling, 34(4), 568–578. https://doi.org/10.1016/j.jpolmod.2012.05.011
Nam, D., & Wang, J. (2015). The effects of surprise and anticipated technology changes on international relative prices and trade. Journal of International Economics, 97(1), 162–177. https://doi.org/10.1016/j.jinteco.2015.04.009
Pangestu, M. (2019). China–US trade War: an Indonesian perspective. China Economic Journal, 12(2), 208–230. https://doi.org/10.1080/17538963.2019.1611084
Qiu, L. D., Zhan, C., & Wei, X. (2019). An analysis of the China–US trade war through the lens of the trade literature. Economic and Political Studies, 7(2), 148–168. https://doi.org/10.1080/20954816.2019.1595329
Roy, R. P., & Sinha Roy, S. (2017). Financial contagion and volatility spillover: An exploration into Indian commodity derivative market. Economic Modelling, 67, 368–380. https://doi.org/10.1016/j.econmod.2017.02.019
Shaikh, S. A., & Hongbing, O. (2015). Exchange Rate Volatility and Trade Flows: Evidence from China, Pakistan and India. International Journal of Economics and Finance, 7(11), 121. https://doi.org/10.5539/ijef.v7n11p121
Sheldon, I., Mishra, S. K., Pick, D., & Thompson, S. R. (2013). Exchange rate uncertainty and US bilateral fresh fruit and fresh vegetable trade: An application of the gravity model. Applied Economics, 45(15), 2067–2082. https://doi.org/10.1080/00036846.2011.650330
Steinbock, D. (2018). U.S.-China trade war and its global impacts. China Quarterly of International Strategic Studies, 4(4), 515–542. https://doi.org/10.1142/S2377740018500318
Sun, W., & Kim, G. (2018). Assessing the effects of exchange rate depreciation on the US economy: Evidence from a factor-augmented VAR model. Journal of Economic Studies, 45(6), 1242–1271. https://doi.org/10.1108/JES-04-2017-0081
Tham, S. Y., Yi, A. K. J., & Ann, T. B. (2019). U.S.–China trade war: Potential trade and investment spillovers into Malaysia. Asian Economic Papers, 18(3), 117–135. https://doi.org/10.1162/asep_a_00729
Tveteras, S., & Asche, F. (2008). International fish trade and exchange rates: An application to the trade with salmon and fishmeal. Applied Economics, 40(13), 1745–1755. https://doi.org/10.1080/00036840600905134
Ustiuzhanin, A. A., Liman, I. A., Kiselitsa, E. P., Shilova, N. N., & Leyman, T. I. (2019). The ruble exchange rate and the price of oil: Assessment of the degree of dependence, its causes and ways of overcoming. Entrepreneurship and Sustainability Issues, 7(1), 121–132. https://doi.org/10.9770/jesi.2019.7.1(10)
Wei, L. (2019). Towards Economic Decoupling? Mapping Chinese Discourse on the China-US Trade War. Chinese Journal of International Politics, 12(4), 519–556. https://doi.org/10.1093/cjip/poz017
Wei, Y., Qin, S., Li, X., Zhu, S., & Wei, G. (2019). Oil price fluctuation, stock market and macroeconomic fundamentals: Evidence from China before and after the financial crisis. Finance Research Letters, 30, 23–29. https://doi.org/10.1016/j.frl.2019.03.028
Weixian, W. (1999). An empirical study of the foreign trade balance in China. Applied Economics Letters, 6(8), 485–490. https://doi.org/10.1080/135048599352781
Welfens, P. J. J. (2020). Macroeconomic and health care aspects of the coronavirus epidemic: EU, US and global perspectives. International Economics and Economic Policy, 17(2), 295–362. https://doi.org/10.1007/s10368-020-00465-3
World Bank. (2020). East Asia and Pacific Economic Update, April 2020 : East Asia and Pacific in the Time of COVID-19. In Report. https://doi.org/10.1596/978-1-4648-1565-2
World Economic Prospects Monthly. (2020). Economic Outlook, 44(S2), 1–33. https://doi.org/10.1111/1468-0319.12472
Yabuki, S., & Harner, S. M. (2018). China’s new political economy: Revised edition. In China’s New Political Economy: Revised Edition. https://doi.org/10.4324/9780429501692
Zhang, D., Lei, L., Ji, Q., & Kutan, A. M. (2019). Economic policy uncertainty in the US and China and their impact on the global markets. Economic Modelling, 79, 47–56. https://doi.org/10.1016/j.econmod.2018.09.028
Zhang, Y., Li, M., & Chia, W. M. (2014). Foreign interest rate shocks and exchange rate regimes in East Asia. Applied Economics, 46(21), 2488–2501. https://doi.org/10.1080/00036846.2014.902022
Zhao, X., Zhang, W. G., & Liu, Y. J. (2020). Volatility Spillovers and Risk Contagion Paths with Capital Flows across Multiple Financial Markets in China. Emerging Markets Finance and Trade, 56(4), 731–749. https://doi.org/10.1080/1540496X.2018.1472080