Stock market effects of military conflicts on defence industry

Abstract

Purpose This paper aims to examine the short-term market reaction for the world’s 100 largest listed defence firms at and around the three recent largest threats to the global economy – Ukraine–Russia war, Fourth Taiwan Strait Crisis and the Hamas terrorist attack on Israel. Design/methodology/approach The author examine the impact of the three recent largest threats to the global economy in the largest listed defence firms using an event study methodology. Findings The results show a positive and statistically significant short-term reaction around the three geopolitical threats. The results also reveal the existence of higher abnormal returns for defence firms with greater weight of defence sales, in line with the captured regulator theory and for firms with higher research and development and capital expenditure intensity. Originality/value The effect of the war on stock markets has been relatively little examined in the financial theory. This study intends to fill this gap in the literature through the analysis of the three recent largest threats to the global economy.