The impact of the Ukraine-Russia war on world stock market returns

Abstract

As a topical issue, this paper studies the responses of world stock market indices to the ongoing war between Ukraine and Russia. Using daily stock market returns in a sample of 94 countries and covers the period from 22 January 2022 to 24 March 2022, we consistently document a negative relationship between the Ukraine-Russia war and world stock market returns. Our results point to a larger impact at the onset of war, especially during the first two weeks after the invasion of Ukraine on 24 February 2022. The reaction of global stock markets was weaker in the weeks that followed. Furthermore, we find that these effects were most pronounced for countries bordering Ukraine and Russia, as well as for those UN member states that demanded an end to the Russian offensive in Ukraine. Overall, we provide the first empirical evidence of the effect of the Ukraine-Russia war on world stock market returns.

Full text

BORDEAUX ECONOMICS WORKING PAPERS
CAHIERS D’ECONOMIE DE BORDEAUX
MARCH 2022
BxWP2022-06
The impact of the Ukraine-Russia war on world stock
market returns
Whelsy Boungou
Paris School of Business, Paris, France
Alhonita Yatié
Univ. Bordeaux, CNRS, BSE, UMR 6060, F-33600 Pessac, France
BSE UMR CNRS 6060
Université de Bordeaux
Avenue Léon Duguit, Bât. H
33608 Pessac – France
Tel : +33 (0)5.56.84.25.75
http://bse.u-bordeaux.fr/

BxWP2022-06
Abstract
As a topical issue, this paper studies the responses of world stock market indices to the ongoing war
between Ukraine and Russia. Using daily stock market returns in a sample of 94 countries and
covers the period from 22 January 2022 to 24 March 2022, we consistently document a negative
relationship between the Ukraine-Russia war and world stock market returns. Our results point to a
larger impact at the onset of war, especially during the first two weeks after the invasion of Ukraine
on 24 February 2022. The reaction of global stock markets was weaker in the weeks that followed.
Furthermore, we find that these effects were most pronounced for countries bordering Ukraine and
Russia, as well as for those UN member states that demanded an end to the Russian offensive in
Ukraine. Overall, we provide the first empirical evidence of the effect of the Ukraine-Russia war on
world stock market returns.
Keywords: Stock index, War, Ukraine, Russia.
JEL: H56, G11, G14, G15.
To cite this paper: Boungou Whelsy and Yatié Alhonita (2022), The impact of the Ukraine-
Russia war on world stock market returns, Bordeaux Economics Working Papers, BxWP2022-06
https://ideas.repec.org/p/grt/bdxewp/2022-06.html
Bordeaux Economics Working Papers series

2
1. Introduction
“The war is expected to have a considerable impact on the global economy.”
Christine Lagarde, President of the ECB,
27 March 2022.
Several months after the deployment of military bases close to the border with
Ukraine, Russia officially attacked Ukraine on 24 February 2022. The ongoing
military action raises concerns about: (i) the duration of the conflict; (ii) how
Russia will respond to Western sanctions; (iii) its potential impact on the global
economy and in particular on the reaction of global financial markets. In this
paper, we focus on the latter. In tandem with the loss of life and destruction of
property, this attack has introduced new uncertainty into world stock markets
(in addition to those related to the COVID-19 pandemic). Although anecdotal,
the New York Times
1
noted that on the day of the attack, the S&P 500 index
recorded its first correction since October 2020, i.e. it fell by more than 10% from
its recent peak
2
. To the best of our knowledge, there are no empirical studies yet
exploring the impact of the Ukraine-Russia war on world stock markets. This
paper is an attempt to fill this gap.
For our empirical investigation, we use daily data of stock market returns in a
sample of 94 countries over the period from 22 January 2022 to 24 March 2022.
Our results highlight a negative and significant effect of the armed conflict
between Ukraine and Russia on world stock returns. Although tensions
between Ukraine and Russia have existed for a long time, the responses of stock
1
nytimes.com/2022/03/07/business/stock-market-today.html
2
Other stock indices also fell after the Russia attack, such as IMOEX (-33.28%), Wig Poland Index (-
10.53%), DAX (-3.96%), FTSE Italia (-4.04%).

3
market indices to the conflict were more pronounced starting with Russia's
invasion of Ukraine on 24 February 2022. However, the reaction of global stock
markets was weaker in the weeks following the invasion. Finally, we notice that
the performance of the stock market indices was weaker for the countries
bordering Ukraine and Russia, as well as for the UN member countries that
demanded an end to the Russian offensive in Ukraine.
The results of our analysis are important on at least two aspects. First, they
allow us to understand the financial impacts of the ongoing conflict so that
investors, portfolio managers and policy makers can design effective financial
strategies. Second, by considering the Ukraine-Russia war, we extend the
previous studies on the relationship between wars and stock markets, which
focused mainly on the Second World War (such as Frey and Kucher, 2003;
Hudson and Urquhart, 2015; Goel et al. 2017; Richard et al. 2022).
2. Data and model
The level of our analysis is country-day and covers the period from 22 January
2022 to 24 March 2022 (without weekends). Although the start of the war is 24
February 2022, many of the world's major forces had already been planning for
it for some time and considered it only a matter of time. The daily world stock
index data was obtained from the https://www.investing.com/, consisting of
almost 3750 daily observations. We use the daily log return of each stock market
index. Our sample is based on stock market returns in 94 countries around the

4
world
3
. Data on search volumes related to the Ukraine-Russia war was
downloaded from Wikipedia Trends
4
.
Using panel data, we analyze the reaction of world stock market returns to the
Ukraine-Russia war. The panel data describes a worldwide sample of 94
countries and is estimated as follows:
      
where  denotes the log of the stock market index of country c on day d.
 represents the log of Wikipedia Trends search data in country c on day d,
related to the war between Ukraine and Russia (including words like conflict,
war, Ukraine, Russia, Vladmir, Putin). It therefore measures the intensity (or
anxiety) of internet searches related to the current armed conflict between
Russia and Ukraine (reported in Tables with "Ukraine-Russia war").
The regression controls for time fixed-effects, , absorbing a level shift for each
day, capturing the overall trend. The country fixed-effects, , absorbs the
different fixed and time-invariant levels of search intensities across countries.
The standard errors are robust and clustered at the country level. Our empirical
3
Algeria, Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Benin, Bosnia-Herzegovinia,
Botswana, Brazil, Bulgaria, Burkina Faso, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus,
Denmark, Ecuador, Egypt, Finland, France, Germany, Ghana, Greece, Hungary, Iceland, India, Indonesia,
Iraq, Ireland, Israel, Italy, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon,
Malaysia, Malta, Mauritius, Mexico, Mongolia, Montenegro, Morocco, Namibia, Netherlands, New-
Zealand, Niger, Nigeria, Norway, Oman, Pakistan, Palestine, Peru, Philippines, Poland, Portugal, Qatar,
Romania, Rwanda, Saudi Arabia, Senegal, Serbia, Singapore, Slovakia, Slovenia, South-Africa, South-
Korea, Spain, Sri-Lanka, Sweden, Switzerland, Taiwan, Tanzania, Czech Republic, Thailand, Togo,
Tunisia, Turkey, Uganda, United Kingdom, United Arab Emirates, United States, Venezuela, Vietnam,
Zambia, and Zimbabwe.
4
Wikipedia Trends is considered a metric for expressing public interest in a topic. High interest can
express anxiety (stress) or intensity. Consequently, it allows the analysis of stock market responses (Moat
et al. 2013).

5
analysis captures the impact of the Ukraine-Russia war on world stock market
returns.
3. Results
In this section, we present the results of our analysis on the impact of the war
between Ukraine and Russia on world stock market indices. We organize our
study in several steps by investigating: (i) the impact of the war on global stock
market returns (Table 1); (ii) how global stock market responses evolved from
the invasion (Table 2) and several weeks afterwards (Table 3); (iii) whether the
effects differed according to geographical proximity to Ukraine and Russia
(Table 4); (iv) whether stock market responses differed between neutral and
condemning countries (Table 5).
Table 1 presents our main results considering several specifications. Our results
highlight a negative and statistically significant relationship at the 1% level
between the current conflict and stock market indices. Indeed, our results show
that tensions between Ukraine and Russia have a significant negative impact on
the performance of world stock market indices
5
. This result highlights the
sensitivity of world markets to the Ukraine-Russia war
6
. This result is consistent
with previous analyses that have also found a negative relationship between
5
We recognize that a longer period of analysis would have been preferable in order to capture long-term
effects. However, we believe that our results will go some way to initiating the debate on the financial
impact of the war.
6
As a robustness check, we lag our stock market variable by one day, assuming that stock market
responses are not immediate (Kaplanski and Levy, 2010; Hudson and Urquhart, 2015). We find similar
results, not reported to save space (but available on request).

6
conflict and stock market indices (e.g. Frey and Kucher, 2003; Hudson and
Urquhart, 2015, 2022; Goel et al. 2017; Richard et al. 2022). For instance,
exploring the effect of the Second World War (WWII) on the British stock
market, Hudson and Urquhart (2015) find that the British stock market reacted
negatively to WWII
7
.
Table 1. Ukraine-Russia war and stock market index
To deepen our discussion, we investigate how the stock market returns evolved
before and after the invasion of the Russian armies in Ukraine, i.e. on 24
February 2022. To do so, we organize our sample into two subsets from: (i) 22
January 2022 to 23 February 2022 (Pre-invasion); (ii) 24 February 2022 to 24
March 2022 (Post-invasion). The results of this analysis are reported in Table 2.
We still observe a negative relationship between the Ukraine-Russia war and
global stock market indices. However, we highlight that this negative impact
was significantly greater from the time of Russia's invasion of Ukraine
compared to the period prior to 24 February 2022.
7
Taking the case of terrorist attacks, Arin et al (2008) also find that terrorism has a significant and negative
impact on global stock markets.
(I) (II) (III) (IV)
Ukraine-Russia war -1.412*** -0.889*** -1.466*** -0.858***
[0.42] [0.33] [0.46] [0.26]
Number of observations 3747 3747 3747 3747
Number of countries 94 94 94 94
Country fixed-effect No No Yes Yes
Day fixed-effect No Yes No Yes
R2 (within) 0.001 0.017 0.001 0.017
Stock market index
Notes: Robust stantard errors clustered at the country level are presented in brackets. ***, **, and * stand
for significance at the 1%, 5%, and 10% levels, respectively.

7
Table 2. The impact before and during the war
To better understand the dynamics of the propagation of global shocks, we
investigate how global stock market indices have adjusted their responses as
the war persists (Table 3). To do so, we analyze the reactions of the stock
markets week by week. While we reveal a stronger impact at the beginning of
the war (especially two weeks after the invasion), this impact becomes weaker
three to four weeks after, thus highlighting a recovery in global stock markets.
All periods Pre-invasion Post-invasion
Ukraine-Russia war -0.858*** -0.224 -1.001***
[0.26] [0.36] [0.20]
Number of observations 3747 1945 1802
Number of countries 94 94 94
Country fixed-effect Yes Yes Yes
Day fixed-effect Yes Yes Yes
R2 (within) 0.017 0.142 0.016
Stock market index
Notes: Robust stantard errors clustered at the country level are presented in brackets.
***, **, and * stand for significance at the 1%, 5%, and 10% levels, respectively.

8
Table 3. The impact several weeks after the invasion
Furthermore, we complete our analysis by assessing whether the impact is
stronger in countries geographically close to Ukraine and Russia. We find that
the stock market indices of countries geographically close to the conflict have
been the most impacted by the war (Table 4).
Table 4. Nearby vs. geographically distant countries
1 week 2 weeks 3 weeks 4 weeks
Ukraine-Russia war -0.610*** -1.121* -0.888** -0.858***
[0.19] [0.57] [0.36] [0.26]
Number of observations 2375 2811 3266 3747
Number of countries 94 94 94 94
Country fixed-effect Yes Yes Yes Yes
Day fixed-effect Yes Yes Yes Yes
R2 (within) 0.215 0.017 0.017 0.017
Stock market index
Notes: Robust stantard errors clustered at the country level are presented in brackets. ***, **, and * stand
for significance at the 1%, 5%, and 10% levels, respectively.
The weeks after the invasion:
Nearby
countries
Distant
countries
Ukraine-Russia war -7.780** -0.901**
[3.41] [0.37]
Number of observations 724 3023
Number of countries 18 76
Country fixed-effect Yes Yes
Day fixed-effect Yes Yes
R2 (within) 0.36 0.022
Stock market index
Notes: Robust stantard errors clustered at the country level are
presented in brackets. ***, **, and * stand for significance at the 1%,
5%, and 10% levels, respectively.

9
Finally, we examine whether the impact of the war was stronger for those UN
member countries that condemned the invasion compared to countries that
remained neutral (e.g. China, India, South Africa)
8
.We still observe a negative
stock market reaction for both the countries that condemned the invasion and
those that remained neutral. However, the impact was significantly greater for
the countries that condemned the invasion (Table 5).
Table 5. Neutral countries vs. countries that condemned the invasion
4. Conclusion
This paper provides the first empirical evidence of the impact of the war
between Ukraine and Russia on world stock market returns. Using daily data
on stock returns for a sample of 94 countries over the period from 22 January
2022 to 24 March 2022, our results show significant negative effects of the
Ukraine-Russia war on global stock indices. The results of this analysis are
8
For more information on the UN resolution demanding an end to the Russian offensive in Ukraine:
https://news.un.org/en/story/2022/03/1113152
Neutral
countries
Condemn
countries
Ukraine-Russia war -0.266* -0.944***
[0.14] [0.29]
Number of observations 711 3036
Number of countries 19 75
Country fixed-effect Yes Yes
Day fixed-effect Yes Yes
R2 (within) 0.106 0.021
Stock market index
Notes: Robust stantard errors clustered at the country level are
presented in brackets. ***, **, and * stand for significance at the 1%,
5%, and 10% levels, respectively.

10
important for at least one reason: To understand the financial impacts of the
ongoing conflict so that investors, portfolio managers and policy makers can
design effective financial strategies.
References
Arin P., Ciferri D., Spagnolo N., 2008. The price of terror: The effects of
terrorism on stock market returns and volatility. Economics Letters, 101 (3),
164-167.
Frey B., Kucher M., 2003. Wars and markets: How bond values reflect the
second world war. Economica, 68 (271), 317-333.
Goel S., Cagle S., Shawky H. 2017. How vulnerable are international financial
markets to terrorism? An empirical study based on terrorist incidents
worldwide. Journal of Financial Stability, 33, 120–132.
Hudson R., Urquhart A., 2015. War and stock markets: The effect of World War
Two on the British stock market. International Review of Financial Analysis,
40, 166-177.
Hudson R., Urquhart A., 2022. Naval disasters, world war two and the British
stock market. Research in International Business and Finance, 59, 101556.
Kaplanski G., Levy H., 2010. Sentiment and stock prices: The case of aviation
disasters. Journal of Financial Economics, 95 (2), 174-201.

11
Moat H., Curne C., Avakian A., Kenett D., Stanley E., Preis T., 2013.
Quantifying Wikipedia usage patterns before stock market moves. Scientic
Reports, 3, 1801.
Richard C., Burdekin K., Siklos P., 2022. Armageddon and the stock market: US,
Canadian and Mexican market responses to the 1962 Cuban Missile Crisis.
Quarterly Review of Economics and Finance, 84, 112-117.

BxWP2022-06
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Université de
Bordeaux
Avenue Léon
Duguit, Bât.
H 33608
Pessac,
France
Tel : +33 (0)5.56.84.25.75
http://bse.u-bordeaux.fr/
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