Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine
47 Pages Posted: 27 May 2022 Last revised: 23 Jun 2022
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Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine
Date Written: April 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: International Conflicts, Military Spillovers, Neighbors, Proximity Penalty, Rare Disasters, Russia, Trade, Ukraine, war
JEL Classification: F50, F51, G15
Suggested Citation: Suggested Citation