Co-movement between stock markets, energy markets and geopolitical risk: evidence from the Russo–Ukrainian conflict period

Purpose The aim of this paper is to investigate the co-movement between oil market, specifically represented by Brent crude oil and West Texas Intermediate (WTI), and the stock market, which is exemplified by the returns of G7 and Russia stock market indices. Such co-movements have been notably observed during periods of economic crises and instability. In light of this, we undertake a re-examination of the relationship between the oil market and the stock market, introducing additional variables that take into account geopolitical risk (GPR). Employing empirical methods, including bivariate and multivariate wavelet analysis, we aim to explore this complex interconnection. This approach allows us to not only assess the co-movements but also discern the impact of geopolitical factors on the dynamic relationship between the oil and stock markets. Design/methodology/approach Using the oil prices (Brent and WTI), along with stock indices of the G7 and Russia, we applied the bivariate wavelet technique. The results revealed a pronounced similarity and temporal coincidence between oil price movements and stock market indices, particularly during periods of crises and uncertainty. However, to deepen our understanding of this complex relationship, we expanded our analysis by incorporating the GPR factor. Employing the multiple wavelet coherence technique, our findings underscored a strong coherence among stock market returns, oil prices and GPRs. This observation emphasizes the crucial importance of the geopolitical context in comprehending joint movements in financial and oil markets. Findings It is crucial to emphasize the significance of the sample selection in our study, particularly in 2014 and persists to this day. This crisis demonstrated that geopolitical events have implications not only at the national level, specifically in Russia, but also through various economic channels that extend to other economies, as evidenced by our analysis of G7 stock indices. This more comprehensive approach will refine our understanding of the complex interactions between global markets and geopolitical factors, providing valuable insights for market decision-makers to anticipate and mitigate potential risks. Originality/value The research suggests that investors and decision-makers should consider geopolitical factors when assessing risks and opportunities in the markets. By anticipating and understanding the potential impact of geopolitical events, it becomes possible to adopt more informed and resilient strategies in the face of fluctuations in financial and oil markets.