Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine

CEPR Discussion Paper No. DP17185

44 Pages Posted: 6 Apr 2022 Last revised: 6 Jun 2022

See all articles by Jonathan Federle

Jonathan Federle

Ludwig Maximilian University of Munich, Institute for Capital Markets and Corporate Finance

Andre Meier

affiliation not provided to SSRN

Gernot J. Müller

University of Tuebingen - Department of Economics

Victor Sehn

LMU Munich School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: May 31, 2022

Abstract

The outbreak of a war exposes countries and firms in its proximity to the risk of military escalation. Disaster risk goes up and stock markets decline accordingly. In support of this hypothesis, we identify a "proximity penalty" in the stock market response to the Russian invasion of Ukraine. The closer countries and---even within countries---firms are located to Ukraine, the more negative their equity returns in a four-week window around the start of the war. Controlling for trade-related spillovers, 1,000 kilometers of extra distance equate to 1.1 percentage points in equity returns.

Keywords: Rare disasters, Proximity Penalty, War, Military Spillovers, International Conflicts, Russia, Ukraine, Trade, Neighbors

JEL Classification: F50, F51, G15

Suggested Citation

Federle, Jonathan and Meier, Andre and Müller, Gernot J. and Sehn, Victor, Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine (May 31, 2022). CEPR Discussion Paper No. DP17185, Available at SSRN: https://ssrn.com/abstract=4060222 or http://dx.doi.org/10.2139/ssrn.4060222

Jonathan Federle (Contact Author)

Ludwig Maximilian University of Munich, Institute for Capital Markets and Corporate Finance ( email )

Schackstr. 4
Munich, 80539
Germany

Andre Meier

affiliation not provided to SSRN

No Address Available

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

Victor Sehn

LMU Munich School of Management ( email )

Institute of Accounting, Auditing and Analysis
Ludwigstr. 28 RG
Munich, 80539
Germany

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