The pro-Russian conflict and its impact on stock returns in Russia and the Ukraine

We analyze the impact of the pro-Russian conflict on stock returns in Russia and the Ukraine during the period November 21, 2013 to September 29, 2014. We utilize four newly created indicators for the degree of (de-)escalation based on an Internet search for conflict-related news. We find that escalation of the conflict is bad news for investors in both stock markets. Russian returns decrease by as much as 21 basis points (bps) after a 1 percentage point (pp) increase in escalation and Ukrainian returns drop by even more (up to 30 bps). In total, (de-)escalation of the pro-Russian conflict in the Ukraine accounts for a variation of up to 14.6 (33.4) pp in the Russian (Ukrainian) stock market. We also find that news from international sources is more relevant for investors in the Russian stock market than is news from Russian sources. © 2015, Springer-Verlag Berlin Heidelberg.