The paper explores the impact of the 2022 Russian invasion of Ukraine, in context of the associated sanctions on global stock markets. The research question focuses on how the war and the sanctions influence abnormal and cumulative abnormal returns (CARs) across different global equity markets and whether factors like trade dependency or geopolitical alignment drive variations in market responses.
To answer this, the authors use an event study methodology, analyzing abnormal and cumulative abnormal returns for 47 developed and emerging market indices during specific event windows around the invasion. The study incorporates cross-sectional regression analysis to identify country-specific factors, such as NATO membership, trade-to-GDP ratios, and currency strength, that influence market reactions.
The results reveal significant heterogeneity in market responses. Developed markets, particularly those in Europe, experienced sharp negative returns due to their economic ties with Russia and proximity to the conflict. Emerging markets, especially those in resource-rich regions like the Middle East, exhibited positive returns in the post-event period, benefiting from rising commodity prices, although a few countries (notably Greece and Hungary) continued to record negative reactions. NATO member countries saw positive post-event CARs, likely reflecting market expectations of increased defense spending and geopolitical stability. The study also finds that countries with higher trade dependencies or stronger currencies experienced more negative returns, underscoring the vulnerability of globalized economies to sanctions-induced challenges.
These findings suggest that policymakers and investors should account for the vulnerability created by intense trade linkages and for the protective role of reliable security alliances when assessing conflict risk.
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