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
Date Written: May 31, 2022
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: Suggested Citation