The Russo-Ukrainian war and financial markets: the role of dependence on Russian commodities

This study examines the influence of the Russo-Ukrainian war on financial markets, conditioned upon a country's dependence on Russian commodities, employing a large panel of 73 countries. Financial markets reacted to the war-induced shock significantly, with a weaker effect on asset prices than volatility. Markets perceived the dependence on Russian commodities as a significant risk factor, sinking stock returns and intensifying instability. The effect of the war on returns was significant for countries with a dependence beyond the [0–20%] level, suggesting a threshold for an adverse effect on asset prices. The armed conflict exacerbated volatility regardless of dependence levels; the effect increased with dependence. Results have implications for diversification strategies in international exchanges.