Trade dependence and stock market reaction to the Russia‐Ukraine war

• Published date: 01 September 2023
• Author: Reza Tajaddini,Hassan F. Gholipour
• Date: 01 September 2023
• DOI: http://doi.org/10.1111/irfi.12414

SHORT REPORT

Trade dependence and stock market reaction

to the Russia-Ukraine war

Reza Tajaddini

1

| Hassan F. Gholipour

2

1

School of Business, Law, and

Entrepreneurship, Swinburne University of

Technology, Melbourne, Australia

2

School of Business, Western Sydney

University, Sydney, Australia

Correspondence

Hassan F. Gholipour, School of Business,

Western Sydney University, Sydney, Australia.

Email: h.fereidouni@westernsydney.edu.au

Abstract

Using data from 83 countries, we show that the decline in

the value of stock market indices in response to the

Russia-Ukraine war was sharper in countries that have

stronger trade ties (both exports and imports) with Russia

and Ukraine. We also find the relationship between trade

dependency and market drop is weaker in countries with

more trade openness.

KEYWORDS

conflicts, financial markets, Russia, trade, Ukraine, war

JEL CLASSIFICATION

F40, F51, G15

1|INTRODUCTION

Since the start of globalization, over three decades ago, many countries have liberalized their economies by

attracting foreign investments and reducing tariffs and trade restrictions. The cross-border flow of goods, services,

and capital has increased the economic integration among nations and their stock markets (e.g., Song et al., 2021). In

one of the early studies in this area, Huth (1994) shows that economic interdependence among countries impacts

the profitability of their local firms and stock markets. Pretorius (2002) provides a theoretical framework for the rela-

tionship between bilateral trade and stock market integration of partner countries. She explains that, as two coun-

tries develop important economic interdependence via bilateral trade, their economies and financial markets move in

a similar direction.

Since then, many empirical studies have investigated this phenomenon, with a large majority of them confirming

the substantial positive impacts of economic interdependence on stock markets' co-movements (see e.g., Chambet &

Received: 20 May 2022 Revised: 11 December 2022 Accepted: 22 February 2023

DOI: 10.1111/irfi.12414

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which

permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no

modifications or adaptations are made.

© 2023 The Authors. International Review of Finance published by John Wiley & Sons Australia, Ltd on behalf of International Review

of Finance Ltd.

680 International Review of Finance. 2023;23:680–691.

wileyonlinelibrary.com/journal/irfi