The Russia–Ukraine Conflict and Stock Markets: Risk and Spillovers

Maria Leone (), Alberto Manelli and Roberta Pace
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Maria Leone: Department of Management, Polytechnic University of Marche, Piazzale Martelli 8, 60121 Ancona, Italy
Alberto Manelli: Department of Management, Polytechnic University of Marche, Piazzale Martelli 8, 60121 Ancona, Italy
Roberta Pace: Department of Industrial and Information Engineering and Economics, University of L’Aquila, Via G. Mezzanotte, 67100 L’Aquila, Italy

Risks, 2025, vol. 13, issue 7, 1-16

Abstract: Globalization and the spread of technological innovations have made world markets and economies increasingly unified and conditioned by international trade, not only for sales markets but above all for the supply of raw materials necessary for the functioning of the production complex of each country. Alongside oil and gold, the main commodities traded include industrial metals, such as aluminum and copper, mineral products such as gas, electrical and electronic components, agricultural products, and precious metals. The conflict between Russia and Ukraine tested the unification of markets, given that these are countries with notable raw materials and are strongly dedicated to exports. This suggests that commodity prices were able to influence the stock markets, especially in the countries most closely linked to the two belligerents in terms of import-export. Given the importance of industrial metals in this period of energy transition, the aim of our study is to analyze whether Industrial Metals volatility affects G7 stock markets. To this end, the BEKK-GARCH model is used. The sample period spans from 3 January 2018 to 17 September 2024. The results show that lagged shocks and volatility significantly and positively influence the current conditional volatility of commodity and stock returns during all periods. In fact, past shocks inversely influence the current volatility of stock indices in periods when external events disrupt financial markets. The results show a non-linear and positive impact of commodity volatility on the implied volatility of the stock markets. The findings suggest that the war significantly affected stock prices and exacerbated volatility, so investors should diversify their portfolios to maximize returns and reduce risk differently in times of crisis, and a lack of diversification of raw materials is a risky factor for investors.

Keywords: financial and commodity markets; volatility; multivariate GARCH (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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