Discussion paper

DP17185 Proximity to War: The stock market response to the Russian invasion of Ukraine

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.

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Citation

Federle, J, G Müller, A Meier and V Sehn (eds) (2022), “DP17185 Proximity to War: The stock market response to the Russian invasion of Ukraine”, CEPR Press Discussion Paper No. 17185. https://cepr.org/publications/dp17185-0