How do neighbouring stock markets and sensitive sectors discount the Russia-Ukraine military conflict?

The outbreak of the Russia-Ukraine military conflict has triggered disruptive macroeconomic implications and reactions on international financial markets. Research on this ongoing extreme event is still scarce, and the evidence is divergent. This article aims to analyse the effects of this event on stock indices of 10 countries close to the conflict and on the stocks of 94 companies across 5 business sectors. The empirical work employs the event study methodology, using market modelling to estimate abnormal returns and stock price reactions. The timeframe was set between 21/10/2021 and 31/03/2022, around the date of the event, including the estimation window [−90;−20] days and the event window [−5;+25] days. The findings suggest that the conflict significantly impacted the stock prices across all sectors and indices, except for the Estonian and Finnish. The tourism sector accumulated the most significant losses, followed by banking and agri-food, while the military sector accumulated abnormal gains. Stock indices from former USSR countries underperformed compared to those of neighbouring Ukraine or Black Sea. The performance of the Bulgarian, Hungarian, Polish, Romanian, Kazakh, Estonian and Finnish indices supports the semi-strong form of the EMH by reflecting the transience of abnormal returns. The most impactful events were the sanctions on Russia, the occupation of the Zaporizhian nuclear power plant and the attack on the Mariupol hospital. The evidence highlights the importance of adopting investment diversification strategies and defining regulatory policies in order to mitigate the risk of extreme crisis events.