Russia-Ukraine conflict: The effect on European banks’ stock market returns

Abstract

We examine the short-term market impact of the beginning of the military conflict between Russia and Ukraine (February 24, 2022) on the largest European listed banks. Using an event study, for the 100 largest European listed banks, we observe a negative and statistically significant stock price reaction at and around the beginning of the military conflict. These results are consistent with investor sentiment, investment portfolio rebalancing and the asset pricing perspective. Furthermore, we use a cross-sectional analysis against a set of country- and bank-specific variables. The results show a higher negative stock market reaction for Russian listed banks and for foreign banks with a high exposure to Russia. The magnitude of the stock market reaction to the military conflict is reinforced or mitigated by bank-specific determinants such as size, profitability, risk aversion, operational efficiency level, institutional ownership and exposure to Russia.