Are the European Union stock markets vulnerable to the Russia–Ukraine war?

Abstract

This study examines the market reaction to the 2022 Russian invasion of Ukraine on the leading European Union stock market indices employing the event study method, cross-sectional and network analysis We find adverse event day impact on the stock market indices. Further, Poland, Denmark, and Portugal exhibit positive cumulative abnormal returns post-event. A few developed nations are insignificant to the war event. The findings are attributable to the geographic proximity to the war zone and the market efficiency. While the developed markets and NATO nations exhibit positive returns, the economic sanctions and the fear of reduced exports negatively drive abnormal returns during the post-event windows. Contrary to previous studies, stronger past returns negatively drive the returns during the post-event windows. Additional analysis on the mapping of financial networks provides relevant insights into systemic integration between EU stock markets, especially during the war.