The price of war: Effect of the Russia-Ukraine war on the global financial market

Abstract

We investigate the effect of the ongoing war between Russia-Ukraine on the global financial market as financial market is sensitive to extreme events and related news. In addition, we are examining the magnitude of war effect on different country groups. Taking the event of a Russian attack on Ukraine, we use the event study method to examine the price impacts of the Russia-Ukraine war 2022 on the global stock market. In addition, we examine the cross-sectional variation in abnormal returns using country-specific variables. Further, we conduct a robustness check to validate the main results for the cross-sectional variation. We find that stock indices show the negative AARs and CAARs after the announcement of the invasion. However, the magnitude of negative return varies for different regions. The developed countries experienced more negative price reactions than emerging countries. In addition, EMEA (Europe, Middle East, and Africa) is the most affected area on a geographical division basis, whereas the American division does not show significant price reactions. Further, countries with higher GDP experienced less sell-off in their indices. We also find that the trade-to-GDP ratio negatively impacts the abnormal returns in the post-event window, indicating that countries with more percentage of the trade in their GDP have been affected to a greater extent.