Trade War Risk and Valuation of Overseas Listed Companies: An Empirical Study on China Concept Stocks

Through the unexpected event of the US-China trade war, this article explores whether the valuation of overseas listed companies is affected in the context of the trade war between the two countries and the changes in the connection between business valuation and the two stock markets. By taking the Trade Policy Uncertainty (TPU) Index as the proxy variable of the trade war, this paper uses the daily return of China concept stocks (CCSs) and other related data to verify the trade war's negative impact on the valuation of overseas listed companies. After controlling other factors, as the US TPU Index rises, the daily return of CCSs decreases remarkably, and its connection with the daily return of bilateral markets is strengthened. Furthermore, this paper finds that with the four stages of the trade war “outbreak-truce-recurrence-mitigation”, the daily return of CCSs shows the notable characteristics of “fall-stabilization-fall-stabilization”. Besides, this paper verifies the empirical results through a robustness test of data about listed companies in both two markets and a placebo test of the impact of the COVID-19 pandemic.