Abstract

China-US economic relation is of particular significance to the world economy. This paper aims to investigate how trade frictions influence Chinese stock market volatilities. Overall, trade frictions significantly increase large stocks' volatilities, whereas influences the SMEs differently before and after the 301 investigation. For the big caps (SSE50), opinion divergence has a partial mediation effect between trade frictions and market volatilities. Trade frictions lead to higher opinion divergence, and opinion divergence reduces market volatility before the 301 investigation and increases market volatility in Stages IV and V. This result is robust after controlling the endogeneity of opinion divergence. For the small caps (SMEs), the mediation effect has not been founddetected, but opinion divergence significantly influences stock volatility, negative before the Section 301 investigation, whereas positive after that.

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