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Impact of Russia-Ukraine War on Stock Market

Abstract:

The Russia-Ukraine war, initiated on February 24, 2022, has precipitated a multifaceted crisis with far-
reaching implications for global financial markets. This report employs a comprehensive analysis of
major stock market indices—S&P BSE Sensex, Nifty500, and S&P500—sourced from
in.investing.com. The study delineates distinct patterns in market behaviour across pre-war, war onset,
and subsequent phases, revealing heightened sensitivity and volatility. The inclusion of the S&P500
offers a global perspective on the conflict's impact, emphasizing the interconnectedness of the global
economy. The report provides strategic insights for both short-term and long-term investors,
highlighting the importance of diversification, vigilant monitoring, and adaptive strategies. As the
Russia-Ukraine conflict evolves, ongoing economic monitoring and a forward-looking approach are
essential for navigating the dynamic post-war market landscape.

Keywords: Russia-Ukraine war, Stock Market, Investment

I. Introduction

The Russia-Ukraine war, which commenced with Russia's invasion of Ukraine on February 24, 2022,
has unfolded as a grave humanitarian crisis and a geopolitical upheaval, significantly impacting global
financial markets. This conflict has its roots in the complex history and geopolitical dynamics between
Russia and Ukraine, exacerbated by Ukraine's pursuit of closer ties with the West and Russia's vehement
opposition to NATO expansion into the region. The war has led to dire consequences, with tens of
thousands of casualties, mass displacement, and a severe refugee crisis, making it the largest such crisis
in Europe since World War II.

The geopolitical tensions have had profound repercussions on financial markets, with far-reaching
consequences for investors and businesses. The invasion triggered a wave of international
condemnation, leading to widespread economic sanctions imposed on Russia and its ally Belarus. The
global financial community responded by imposing sanctions on Russia, resulting in a substantial
economic impact. The crisis prompted more than 1,000 companies to close their operations in Russia
and Belarus, demonstrating the far-reaching economic consequences of the conflict. The International
Criminal Court (ICC) even issued an arrest warrant for Russian President Vladimir Putin in connection
with alleged crimes against humanity.

The impact on stock markets has been pronounced, both in the regions directly involved and globally.
The conflict prompted a surge in market volatility, with significant declines in stock indices. Countries
around the world, including India, experienced market downturns, as evidenced by the drop in the S&P
BSE Sensex and Nifty 50. Furthermore, companies across various industries, such as technology,
automotive, and hospitality, withdrew from the Russian market, contributing to the economic
ramifications of the conflict.
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The financial repercussions extended beyond traditional stock markets, affecting currency values and
commodity prices. The Russian Ruble experienced a sharp depreciation against major currencies,
prompting the Russian central bank to implement capital restrictions. Additionally, the war influenced
the prices of commodities like gold and crude oil, with the latter witnessing a surge due to concerns
over supply disruptions from the region.

This multifaceted impact on financial markets underscores the interconnectedness of the global
economy and the vulnerability of markets to geopolitical events. The ongoing conflict continues to be
closely monitored for its evolving economic consequences and potential implications for international
trade and investment.

II. Literature Review

Existing scholarship has extensively examined the intricate interplay between political uncertainty and
financial market outcomes, consistently revealing the adverse impact of political instability on stock
market returns and financial asset risk profiles (Gemmill, 1992; Nippani & Medlin, 2002; Mei & Guo,
2004; Jones & Banning, 2008). Berkman et al. (2011) emphasized the global significance of political
crises in elucidating both the mean and volatility of stock market returns. Lehkonen and Heimonen's
(2015) study, encompassing data from 49 emerging nations, underscored the inverse relationship
between political risk and stock returns. Smales (2017) specifically linked political risk, exemplified by
the Brexit referendum, to heightened financial market uncertainty. Research by He et al. (2017)
demonstrated a significant decline in stock market returns associated with non-violent diplomatic
disputes between China and Taiwan.

In the context of recent geopolitical events, investigations into the Russia–Ukraine crisis have
illuminated its substantial impact on global financial markets. Boungou and Yatié (2022) revealed the
crisis's adverse effect on global stock market indices. Boubaker et al. (2022) differentiated between
developed and emerging markets, highlighting the heavier adverse impact on developed market indices.
Ahmed et al. (2022) specifically focused on Russia's recognition of Ukrainian states as autonomous
regions, finding a significant negative impact on European stock markets. Fang and Shao (2022) delved
into the multifaceted effects of the Russia–Ukraine conflict on commodity markets, encompassing both
economic and financial channels. This literature review establishes a comprehensive foundation for
understanding the dynamics of political uncertainty and its consequences on financial markets, with a
particular emphasis on the Russia–Ukraine crisis.

III. Methodology

This study delves into the impact of the Russia-Ukraine war on three major stock market indices:
Sensex, Nifty500, and S&P500. The comprehensive dataset used for analysis was sourced from
in.investing.com, ensuring reliability and accuracy in capturing the intricacies of the market dynamics.

The data collection process covered the period from February 1 to March 30, 2022, allowing for a
detailed examination of the pre-war, war onset, and subsequent phases. The critical event marking the
onset of the Russia-Ukraine war on February 24, 2022, was carefully identified through reputable news
sources, establishing a precise temporal reference for the analysis.
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For each index, the dataset comprised essential financial metrics such as daily closing prices, open and
close values, high and low prices, trading volumes, and percentage changes. This comprehensive set of
variables aimed to provide a holistic view of market behaviour during the specified period.

Statistical analysis employed a variety of methods, starting with descriptive statistics to discern central
tendencies and dispersions in daily closing prices and percentage changes. Time-series analysis
facilitated the identification of trends and patterns within the dataset, contributing to a nuanced
understanding of market dynamics over time.

The impact analysis of the war onset incorporated event study methodology. This approach allowed for
a comparative assessment of market performance before and after the critical event date, identifying
significant deviations or anomalies. Graphical representations complemented these analyses, offering
visual insights into market trends and fluctuations.

The inclusion of S&P500 in the study enriched the comparative analysis, providing a broader
perspective on the global impact of the Russia-Ukraine war. The methodology adheres to the APA
format, ensuring clarity, coherence, and methodological rigor in examining the intricate relationship
between geopolitical events and stock market indices.

IV. Impact on Stock Markets

A. Impact on Indian Stock Markets

S&P BSE Sensex

In the period leading up to the conflict (February 1 - February 23, 2022), the Sensex maintained a
relatively steady trajectory, characterized by an average daily closing price of around INR 58,676.37
and a standard deviation of 488.49. This initial phase establishes a benchmark for subsequent
assessments, illustrating the market's stability prior to the geopolitical tensions.

SENSEX
62000
60000
58000
56000
54000
52000
50000
48000
Feb 01, 2022

Feb 23, 2022

Mar 21, 2022

Feb 03, 2022
Feb 07, 2022
Feb 09, 2022
Feb 11, 2022
Feb 15, 2022
Feb 17, 2022
Feb 21, 2022

Feb 25, 2022

Mar 02, 2022
Mar 04, 2022
Mar 08, 2022
Mar 10, 2022
Mar 14, 2022
Mar 16, 2022

Mar 23, 2022

Mar 25, 2022
Mar 29, 2022

Source: in.investing.com Historical Data

Note: prices are in INR

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With the onset of the conflict on February 24, 2022, a substantial deviation occurred, resulting in a
notable daily percentage change of -4.72%. This significant decline underscored the immediate impact
of geopolitical tensions on the Sensex. Following this event, the market displayed heightened volatility,
as evidenced by increased standard deviations and fluctuating daily percentage changes.

In the immediate aftermath of the conflict (February 25 - February 28, 2022), the Sensex exhibited a
recovery, reflecting an average daily percentage change of 1.03%. Despite this resurgence, the elevated
standard deviation indicated persistent uncertainty in the market.

Throughout the mid-war period (March 1 - March 10, 2022), heightened volatility persisted, marked by
a standard deviation of 1.29. The daily percentage changes continued to fluctuate, illustrating the
challenges faced by investors in adapting to the evolving geopolitical landscape.

Moving into the late-war period (March 11 - March 30, 2022), the Sensex showed signs of returning to
a more stabilized state, with the average daily percentage change decreasing to 0.44%. However, the
comparatively high standard deviation at 0.75 suggested lingering market fluctuations as the situation
continued to unfold.

NSE Nifty500

In the pre-war phase (February 1 - February 23, 2022), the Sensex maintained a relatively stable course,
with an average daily closing price of approximately INR 58,676.37 and a standard deviation of 488.49.
This initial period sets the baseline for subsequent evaluations, illustrating the market's pre-war stability.

NIFTY500
15500

15000

14500

14000

13500

13000

12500
Feb 01, 2022
Feb 03, 2022
Feb 07, 2022
Feb 09, 2022
Feb 11, 2022
Feb 15, 2022
Feb 17, 2022
Feb 21, 2022
Feb 23, 2022
Feb 25, 2022
Mar 02, 2022
Mar 04, 2022
Mar 08, 2022
Mar 10, 2022
Mar 14, 2022
Mar 16, 2022
Mar 21, 2022
Mar 23, 2022
Mar 25, 2022
Mar 29, 2022

Source: in.investing.com Historical Data

Note: prices are in INR

On the onset of the conflict (February 24, 2022), a substantial deviation occurred, resulting in a daily
percentage change of -4.72%. This sharp decline highlighted the immediate impact of geopolitical
tensions on the Sensex. Subsequently, the market exhibited increased volatility, evidenced by elevated
standard deviations and fluctuating daily percentage changes.

During the immediate post-war phase (February 25 - February 28, 2022), the Sensex demonstrated a
recovery with an average daily percentage change of 1.03%. Despite this resurgence, the standard
deviation remained elevated, indicating ongoing market uncertainty.
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In the mid-war period (March 1 - March 10, 2022), heightened volatility persisted, marked by a standard
deviation of 1.29. The daily percentage changes fluctuated, reflecting the challenges investors faced in
adapting to the evolving geopolitical landscape.

The late-war period (March 11 - March 30, 2022) portrayed a return to a more stabilized state, with the
average daily percentage change reducing to 0.44%. However, the standard deviation remained
comparatively high at 0.75, indicating persistent market fluctuations as the situation unfolded.

B. Impact on Indian Global Markets

S&P500

In the pre-war period (February 1 - February 23, 2022), the S&P 500 exhibited stability with an
average daily closing price of approximately USD 4,513.43 and a low standard deviation of 38.61,
yielding a low coefficient of variation (0.0085). This period set the baseline for subsequent
assessments, showcasing a market that was relatively immune to major fluctuations.

S&P500
4700
4600
4500
4400
4300
4200
4100
4000
3900
Mar 16, 2022
Feb 01, 2022
Feb 03, 2022
Feb 07, 2022
Feb 09, 2022
Feb 11, 2022
Feb 15, 2022
Feb 17, 2022
Feb 22, 2022
Feb 24, 2022
Feb 28, 2022
Mar 02, 2022
Mar 04, 2022
Mar 08, 2022
Mar 10, 2022
Mar 14, 2022

Mar 18, 2022

Mar 22, 2022
Mar 24, 2022
Mar 28, 2022

Source: in.investing.com Historical Data

Note: prices are in USD

On the day the war started (February 24, 2022), a significant quantitative deviation occurred, with a
daily percentage change of -1.84%. This abrupt decline, well beyond the preceding standard deviations,
underscores the palpable impact of geopolitical events on market movements. Further exploration into
trading volume on this day could unveil additional insights into investor sentiment, contributing to a
more holistic understanding of market dynamics.

During the immediate post-war period (February 25 - February 28, 2022), quantitative analysis indicates
a quick rebound in the S&P 500, with an average daily percentage change of 1.09%. While this suggests
a recovery, the standard deviation of 1.02 reflects ongoing volatility, signifying a market still in flux.

In the mid-war period (March 1 - March 10, 2022), the quantitative lens reveals an increased standard
deviation of daily percentage changes (1.21), indicative of heightened volatility. Investors grappled with
uncertainties, resulting in a fluctuating market environment. The numerical data during this phase
underscores the challenges faced by market participants in adjusting to geopolitical uncertainties.
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The late-war period (March 11 - March 30, 2022) displayed a reduction in the average daily percentage
change to -0.09%, signalling a return to a more stabilized state. However, the standard deviation
remained elevated at 0.77, underscoring persistent market fluctuations even as the situation evolved.

V. Investment Strategies

A. Short-Term Strategies

In the immediate aftermath of the Russia-Ukraine conflict, short-term investors can implement
strategies to navigate heightened market volatility. Diversification remains a key approach, allowing
investors to spread risk across different sectors and assets. By allocating investments strategically,
potential losses in one area may be balanced by gains in others, reducing overall portfolio risk. Staying
vigilant and monitoring geopolitical developments is crucial for short-term investors. The rapid
evolution of the conflict's narrative can significantly impact market sentiment, making real-time
information essential for making informed decisions. For those with a higher risk tolerance, the use of
derivative instruments such as options or futures contracts can be considered as a means of hedging
against potential losses or capitalizing on short-term market fluctuations. Additionally, active trading
strategies, like day trading or swing trading, can be explored, provided investors are well-versed in the
intricacies of market dynamics.

B. Long-Term Considerations

Long-term investors are encouraged to adopt a strategic and patient approach amidst the post-war
market landscape. Fundamental analysis should be a cornerstone, with a focus on identifying quality
stocks exhibiting robust financials and growth potential. Weathering geopolitical uncertainties requires
a disciplined investment approach, emphasizing the importance of avoiding impulsive decisions driven
by short-term market fluctuations. Value investing opportunities may arise, presenting a chance for
long-term investors to capitalize on quality stocks that have experienced temporary price declines.
Global diversification is a prudent strategy to mitigate risks associated with regional market volatility.
Investing in sectors less directly impacted by the Russia-Ukraine conflict and considering international
markets can provide a buffer against localized market downturns. For income stability, evaluating
dividend-paying stocks is recommended. Stocks with a consistent history of dividend payments can act
as a reliable income source and serve as a hedge against market volatility. Long-term investors should
tailor their strategies based on individual risk tolerance, investment goals, and time horizon, seeking
guidance from financial professionals and staying abreast of geopolitical developments for informed
decision-making. The dynamic post-war market environment requires adaptability and a forward-
looking perspective to navigate successfully.

VI. Conclusion

The Russia-Ukraine war, initiated on February 24, 2022, has triggered a multifaceted crisis with
profound implications for global financial markets. Stemming from complex geopolitical dynamics, the
conflict has led to severe humanitarian consequences, widespread economic sanctions, and a significant
refugee crisis. This report comprehensively examined the impact of the war on major stock market
indices, namely the S&P BSE Sensex, Nifty500, and S&P500, using data sourced from
in.investing.com.
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The study's methodology, incorporating a thorough analysis of pre-war, war onset, and subsequent
phases, revealed distinct patterns in market behavior. Immediate reactions showcased a sensitive market
environment, with indices experiencing downturns and heightened volatility. The post-war periods
exhibited varying degrees of recovery and stabilization, indicating the resilience of markets amidst
geopolitical uncertainties.

The inclusion of the S&P500 enriched the analysis, offering a global perspective on the war's impact.
The financial repercussions extended beyond traditional stock markets, affecting currency values and
commodity prices. The interconnectedness of the global economy became evident as companies
withdrew operations from Russia and Belarus, demonstrating the far-reaching economic consequences
of the conflict.

In light of these findings, short-term investors are advised to employ diversification, monitor
geopolitical developments, and consider derivative instruments for navigating volatility. Long-term
investors, on the other hand, should focus on fundamental analysis, global diversification, and value
investing opportunities, remaining disciplined and patient in their approach.

As the Russia-Ukraine conflict continues to unfold, ongoing monitoring of economic consequences and
potential implications for international trade and investment is imperative. The interconnected nature
of the global economy underscores the need for adaptive and forward-looking investment strategies to
navigate the evolving post-war market landscape.

VII. References

Izzeldin, M., Muradoğlu, G., Pappas, V., Petropoulou, A., & Sivaprasad, S. (2023). The impact of the
Russian-Ukrainian war on global financial markets. International Review of Financial Analysis, 87,
102598. https://doi.org/10.1016/j.irfa.2023.102598

Jagran josh. (2022, March 8). What is the conflict between Russia and Ukraine? Key reasons behind
Russia-Ukraine conflict. Retrieved from jagranjosh.com: https://www.jagranjosh.com/general-
knowledge/russiaukraine-conflict-explained-1644932005-1

Kamal, M. R., Ahmed, S., & Hasan, M. M. (2023). The impact of the Russia-Ukraine crisis on the stock
market: Evidence from Australia. Pacific-Basin Finance Journal, 79, 102036.
https://doi.org/10.1016/j.pacfin.2023.102036

Nifty 500 historical rates - Investing.com India. (n.d.). Investing.com India.

https://in.investing.com/indices/s-p-cnx-500-historical-
data?end_date=1648578600&st_date=1643653800

Sensex historical rates - Investing.com India. (n.d.). Investing.com India.

https://in.investing.com/indices/sensex-historical-data

S&P 500 historical rates - Investing.com India. (n.d.). Investing.com India.

https://in.investing.com/indices/us-spx-500-historical-data

Wikipedia contributors. (2023, December 28). Russian invasion of Ukraine - Wikipedia.

https://en.m.wikipedia.org/wiki/Russian_invasion_of_Ukraine