The Russia-Ukraine War and Eastern European Stock Markets

Abstract

We examine the causal relationships and extreme return co-movements between the Russian stock market and adjacent Eastern European (EE) stock markets before and after the recent Russia-Ukraine war. Considering that the EE stock markets are regarded as a group of emerging markets in the same region for the purpose of investment, we are motivated to identify any change in their relationships after the war because this would be critical in terms of stock portfolio diversification. We find that while the war has a positive impact on the causal relationship between the Russian stock market and the Bulgarian stock market, it has a negative impact on the causal relationships between the Russian stock market and the other EE stock markets. Also, extreme return co-movements between the Russian stock market and the Bulgarian stock market are strengthened after the war whereas those between the Russian stock market and the other EE stock markets are weakened after the war. Our study is expected to provide new insight into stock market participants