2024/10/16 by JONATHAN FEDERLE, Jonathan Federle, André Meier +5
Economics, Econometrics and Finance · Environmental Science · #Economic Sanctions and International Relations #Market Dynamics and Volatility #Environmental and Biological Research in Conflict Zones
paper · pdf · doi:10.1111/jmcb.13226
Abstract We identify a “proximity penalty” in the stock market response to the Russian invasion of Ukraine: the closer countries are to Ukraine, the lower their equity returns in a four‐week window around the start of the war. This result holds even at the firm level within Ukraine's neighbors. Trade linkages explain two‐thirds of the proximity penalty. We attribute the remainder—1.1 percentage points in equity returns per 1,000 km of extra distance—to military disaster risk. Evidence from other financial data, geopolitical risk indicators, and aid flow statistics supports the relevance of military tail risk as a spillover channel.