Financial Market Reactions under the Russia-Ukraine Conflict-An Empirical Study Based on a Multi-factor Model

Abstract

This paper takes advantage of the turbulent situation in eastern Ukraine to study and examine the correlation between war conflicts and stock yields, and to study the impact on the stock returns of A-share listed companies in China. The background of this article is that with the Russian Ministry of Defense announcing the withdrawal of troops stationed on the border between Russia and Ukraine, the crisis situation in eastern Ukraine has been cooling since October 2021, until February 2022, when Ukraine announced in civilian forces that it would evacuate the local population to Russia on the same day, while the situation in eastern Ukraine deteriorated, the local government banned foreign aircraft from entering the country, and declared Ukraine a state of war. This article constructs an index factor that measures the degree of war through the cryptocurrency market price fluctuation index and the cryptocurrency market price fluctuation index. In addition, a new war impact index factor is added to the basic three-factor model, and the explanatory performance of the new multi-factor model for the stock yield of listed companies is more in-depth and whether it is more explanatory than the three-factor model. The study will test whether the Russian-Ukrainian conflict will significantly affect equity returns in China's A-share market. Helps investors better describe the expected returns of a cross-sectional stock portfolio.