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The Russia–Ukraine conflict and foreign stocks on the US market

Danjue Clancey-Shang (Utah State University, Logan, Utah, USA)
Chengbo Fu (University of Northern British Columbia, Prince George, Canada)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 2 January 2023

Issue publication date: 3 February 2023

73

Abstract

Purpose

The authors investigate how market quality diverges between foreign firms and domestic firms on the US stock market in response to the Russia–Ukraine conflict.

Design/methodology/approach

With an event study approach, the authors compare foreign firms with domestic firms in their market responses over the three-day window around the outbreak of the war. Further, with Difference-in-Difference (DID) analyses, the authors study the change in foreign firms' market quality upon this outbreak in comparison with their domestic counterparts. Finally, the authors compare the foreign firms across firm specific characteristics and home country characteristics.

Findings

The authors find that foreign stocks listed in the US experience more severe market quality deterioration compared to the stocks' domestic counterparts. This effect is especially strong for companies from countries considered friendlier towards Russia and companies that are not cross-listed. The authors' findings are consistent with the information asymmetry hypothesis concerning market quality. Moreover, US market investors have more concerns over political risks with non-US-aligned political standings during war times.

Research limitations/implications

The authors' findings are consistent with the information asymmetry hypothesis concerning market quality. Moreover, US market investors have more concerns over political risks over non-US-aligned political standings during war time.

Practical implications

Since both countries in the conflict are in Europe, the US stock market, to a certain degree, becomes a safe haven for capital from Europe and other countries. In the meantime, American Depository Receipts (ADRs) have been important for US investors to create a globally diversified portfolio, and the knowledge regarding ADRs' vulnerability to international geopolitical events is valuable. The author' results are informative for stock market investors to understand the market dynamics for international and domestic companies during this extremely uncertain time.

Originality/value

This is the first study that examines the market quality divergence between foreign firms and domestic firms on the US stock market in response to the Russia–Ukraine conflict. The authors provide novel evidence on the change in ADRs' market quality associated with significant political uncertainty. The authors show that ADRs' market quality is more vulnerable to international geopolitical risks relative to otherwise comparable domestic firms.

Keywords

Acknowledgements

We are grateful for the research support from Utah State University and University of Northern British Columbia. All errors are our own.

Citation

Clancey-Shang, D. and Fu, C. (2023), "The Russia–Ukraine conflict and foreign stocks on the US market", Journal of Risk Finance, Vol. 24 No. 1, pp. 6-23. https://doi.org/10.1108/JRF-07-2022-0179

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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