Geopolitical Risk and Contagion: Evidence from European Stock Markets During the Ukrainian Crisis

ABSTRACT This paper examines the European Union’s (EU) stock market connectedness before and after the Russian invasion of Ukraine. We used the frequency-domain spillover methodology of Baruník and Křehlík 2018 and an event-study approach. We find increased spillover effects, particularly for Central and Eastern European markets. In the long term, the structure of spillover transmission does not substantially change, but the invasion caused a transitory increase in stock market connectedness. We also find confirmation effects accompanied by a transitory decline in EU stock market returns. Although the invasion led to short-term market turbulence, the results indicate little signs of potentially harmful contagion.