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Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine

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  • JONATHAN FEDERLE
  • ANDRÉ MEIER
  • GERNOT J. MÜLLER
  • VICTOR SEHN

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.

Suggested Citation

  • Jonathan Federle & André Meier & Gernot J. Müller & Victor Sehn, 2026. "Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(3), pages 681-703, April.
    • Handle: RePEc:wly:jmoncb:v:58:y:2026:i:3:p:681-703
    DOI: 10.1111/jmcb.13226
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    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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