Assessing conditional volatility due to trade war in the G-7 stock markets

Abstract

We investigate dynamic conditional correlations between Trade War on the stock markets of G-7 Countries using DCC Garch Modeling evidencing that strong market efficiency has an inverse relationship with stock market volatility. However, as the Trade War is between China and USA, there is probability that the stock markets of other countries may react differently to this situation. For this purpose, the Trade War series was created to capture multidimensional aspects of the event. The study's findings reveal that past residual shocks exist for all series. However, time-varying correlations do not exist for America, France, Japan and UK. The study has implications for policymakers and investors in the financial markets.