The study investigates the consequences of the Russia-Ukraine conflict on European financial markets, specifically analyzing how economic sanctions and geopolitical tensions influenced stock market performance. The authors focus on industry- and country-level variations in stock price reactions, exploring whether the effects were uniformly distributed across different sectors or if certain industries bore a greater financial burden.
Using an event study methodology, the authors examine stock price data from firms listed in the STOXX Europe 600 index, spanning the period before and after Russia’s recognition of Donetsk and Luhansk as independent states. By measuring abnormal and cumulative abnormal returns (AAR and CAR), they assess how European markets reacted to the escalation of the conflict and subsequent sanctions.
The findings highlight a clear negative impact on European stock markets. The financial services and consumer staples sectors suffered the most significant losses, reflecting concerns about economic stability and disruptions in supply chains. While energy stocks recorded a small, statistically insignificant uptick in abnormal returns, their performance was nonetheless less negative than most sectors, suggesting that expectations of higher oil-and-gas prices partly cushioned the impact of the conflict. On the other hand, sectors that are highly exposed to global supply chains, most notably Industrials, Basic Materials and Consumer Discretionary, suffered large and statistically significant drops in abnormal and cumulative returns, pointing to acute sensitivity to trade-flow disruptions.
Furthermore, the study finds that firms in countries with stronger economic ties to Russia, such as the Netherlands, were hit hardest, whereas companies in the UK showed relatively better performance. Finally, size-sorted portfolios reveal that small- and mid-cap firms were the most vulnerable, posting larger and more persistent negative AARs and CARs than large-cap stocks.
The paper’s policy recommendations focus on reducing reliance on Russian energy, enhancing financial-stability safeguards, and ensuring rapid, well-coordinated interventions that sustain investor confidence during geopolitical shocks.
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