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The Market Price of Trade War

Trade War factor portfolio that mimics the Trade War narrative, formed as a long-short Trade War beta return spread among S&P500 stocks, has earned a significant positive return over recent years.



Individual-stock daily return sensitivities to changes in Trade War discussion (Trade War betas) are computed using historical rolling windows. A Trade War factor portfolio that mimics the Trade War narrative, formed as a long-short Trade War beta return spread among S&P500 stocks, has earned a significant positive return over recent years. Financial firms, including regional banks and insurance companies are negatively exposed to escalations in the Trade War narrative, while financial exchanges and financial data companies have a positive exposure. Healthcare and Information Technology sectors exhibit significant intra-sector variation in Trade War beta, and Real Estate and Utility firms are largely positively exposed to Trade War. Moreover, from a geographical standpoint, midwest companies are largely positively exposed to Trade War, while Clinton voting states have lower Trade War betas. Therefore, asset prices might seem consistent with some policy objectives of the current administration.

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