What drives abnormal returns of stock markets in wartime? Evidence from 17 invasions

Abstract

This study examines the impact of contemporary invasions on stock markets within advanced and emerging economies. By studying various conflicts and their progression into wars, we aim to expose underlying patterns in stock market reactions. First, we conduct an event study to assess the stock market reactions to seventeen modern invasions from 2001 to 2022. We calculate cumulative abnormal returns for the respective stock market and each invasion. Furthermore, we introduce a regression model highlighting differences in stock market reactions between advanced and emerging countries. The regression model contributes to understanding the relationship between cumulative abnormal returns and each country’s geographic and economic characteristics. Invasions generally have a negative impact on stock markets, with emerging markets showing greater sensitivity and more negative reactions to invasions than advanced stock markets. Furthermore, the findings suggest that underlying drivers play a role in explaining abnormal returns during invasions.