The Two Faces of Animal Spirits: The Impact of War on the Stock Market in Ukraine

07  November 2019    3:00 pm CET

Artem Kochnev, JKU Linz and University of Innsbruck


wiiw, Rahlgasse 3, 1060 Vienna, library (2nd floor)


The presentation is based on a paper of the same title.

The paper assesses the impact of the contemporary war in Ukraine on the value of the firms’ stocks during the first two years of the conflict. Contrary to the majority of the empirical literature – with the predominant result being a negative relationship between economic performance and military/terrorist actions – the paper finds both negative and positive impact of the war on the stock market performance in Ukraine. Using the framework of the Markov-switching dynamic regression, the paper estimates the impact of the battle-events on the weekly-averaged returns of the PFTS stock market index: the biggest stock market exchange in Ukraine. It finds a statistically significant non-linear effect of the battle events on the stock market returns: a 1% increase in the growth rate of the battle events generates a –0.03% change on the growth rate of the stock market index in the state 1 (the pessimistic state) and +0.04% change of the growth rate of the stock market index in the state 2 (the optimistic state) in the preferred specification. The paper argues that the swings of the investors’ expectations with respect to the perspectives of the war outcomes explain the non-linear impact of the battle-events on the valuation of the traded stocks.

Powerpoint presentation, as far as available, will be posted on this page after the seminar.

Keywords: costs of war, Markov-switching dynamic regression, finance, Ukraine crisis

JEL classification: D74, E22, F51, G10