Granger Causality Of Stock Market Dynamics Under The Influence Of Sino US Trade Friction

Since the outbreak of Sino-US trade friction in early 2018,the two countries sometimes introduce policies to increase tariffs,And negotiated on specific trade issues,which has an important impact on many areas of the two countries.As a barometer of the macro-economy,mutual impact of stock markets in two countries is worthy of in-depth study.Especially,how the frequent good and bad information on the trade friction impact stock markets of the two countries ? To solve this problem,we proposes a logarithmic yield decomposition model and uses Granger causality test to analyze the stock market price fluctuation data between Chinese and American stock markets within a specific time period,and then discuss the Sino-US stock market under the influence of the Sino-US trade war Interrelationship.Using the daily open price,the daily highest price,the daily lowest price,the daily close price of log stock return and their appearing order,we decompose daily log return into good information,bad information and overnight information.Simulation test shows that,performance of our model is better than similar log return decomposition models.Firstly,in the empirical research section,SH in Chinese mainland,HSI in Hong Kong and TWII in Taiwan is chosen to be the main stock indices of China,and SPX is chosen to be the main stock index of the United States.Secondly,the log return decomposition model is used to decompose daily return of the indices.Thirdly,dynamic linear Granger causality test method is used to describe time varying causality relationship between the two countries under the impact of Sino-US trade friction.At last,robustness of our results are tested.Empirical results show that,dynamic Granger causality from American stock market to Chinese stock markets is interrupted by Sino-US tradefriction.Chinese mainland stock market is interrupted most,mainly via good information and bad information,followed by Hong Kong stock market,also via good information and bad information,Taiwan stock market is interrupted least,effect of bad information and overnight information is larger than good information.Good information and bad information of Chinese mainland stock market dynamic Granger cause American stock market before the trade friction.However,all the three Chinese stock markets do not dynamic Granger cause American stock market from the perspective of daily log return data.So,we can conclude that,the trade friction initiated by the United States have weakened the influence of its stock market,which is a self-destructive act.