Author(s)

Haoyu Chen, Xin Zhao

Corresponding Author

Haoyu Chen

ABSTRACT

In this paper, an optimal GARCH model conforming to a single market is selected from the GARCH family models, and based on this model, the change in the volatility trend of the US stock market during the Sino-US trade friction is observed. Then, the DCC-GARCH parameter model is employed to conduct an empirical study on the co-movement of daily return rates in the stock markets of three countries in the North American Free Trade Area (NAFTA), based on which the following conclusions are drawn: During the intensified Sino-US trade friction, firstly, the US stock market was not significantly affected by key events, and therefore the investors in the US stock market could lower their expectation of the impact of Sino-US trade friction on the short-term stock price volatility when assessing the investment risks. Secondly, there was an observable difference in the co-movement between any two of the stock markets of the United States, Canada, and Mexico. The stock market co-movement between the United States and Canada is high. As a result, investment diversification in Canada stock market is not ideal in spreading investment risk for the U.S market; And the co-movement between the United States and Mexico and that between Canada and Mexico are relatively low. Thirdly, with the impact of the intensified Sino-US trade friction on economic uncertainty, the dynamic co-movement between the stock markets of the United States and the NAFTA countries is increasing, and key events will have a significant impact on the dynamic co-movement between the stock markets.

KEYWORDS

NAFTA, multivariate GARCH, Political tension