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Proximity to War: The stock market response to the Russian invasion of Ukraine

Author

Listed:
  • Federle, Jonathan
  • Meier, André
  • Müller, Gernot
  • Sehn, Victor
Abstract
The outbreak of a war exposes countries and firms in its proximity to the risk of military escalation. Disaster risk goes up and stock markets decline accordingly. In support of this hypothesis, we identify a "proximity penalty" in the stock market response to the Russian invasion of Ukraine. The closer countries and---even within countries---firms are located to Ukraine, the more negative their equity returns in a four-week window around the start of the war. Controlling for trade-related spillovers, 1,000 kilometers of extra distance equate to 1.1 percentage points in equity returns.

Suggested Citation

  • Federle, Jonathan & Meier, André & Müller, Gernot & Sehn, Victor, 2022. "Proximity to War: The stock market response to the Russian invasion of Ukraine," CEPR Discussion Papers 17185, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17185
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    File URL: https://cepr.org/publications/DP17185
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    More about this item

    Keywords

    Rare disasters; Proximity penalty; War; Military spillovers; International conflicts; Russia; Ukraine; Trade; Neighbors;
    All these keywords.

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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