International Conflicts and the Stock Market: The Canadian Energy Stock Market’s Reactions to the Russia - Ukraine War and Nord Stream Pipeline Attack Open Access

Wang, Xinyi (Miranda) (Spring 2023)

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   Geopolitical events usually have a profound and lasting impact on the economy and the stock market. In this study, I investigate the impact of geopolitical events such as the Russia-Ukraine war and the Nord Stream pipeline attack on the returns of Canadian energy stocks. I use beta, roll measure, vector autoregression, and event study methodology to examine how the 27 Canadian energy stocks react to these two shocks. As a result, I observed higher volatility among the Canadian energy stocks in 2020 and 2022 except for two companies. In terms of liquidity, the roll measure was ineffective because 24 out of the 27 companies have positive autocorrelation with their historical prices. Finally, with the event study methodology, I was able to find significant, positive average cumulative abnormal returns from the Russia-Ukraine war from both the market model and the Fama-French model. However, no significant abnormal returns were found for the pipeline attack. Finally, the impulse response graphs show that generally, energy stock prices rise as crude oil spot prices rise. Then, my study dives deeper into identifying the reasons for the results concluded. Overall, my paper will help readers understand the risks of investing in the Canadian energy market during this time of turbulence and take advantage of the positive abnormal returns.

Table of Contents

Introduction                                                                                                                                                         1


Literature Review                                                                                                                                                1


Theoretical Framework                                                                                                                                      2


Data                                                                                                                                                                        5


Empirical Analysis and Results                                                                                                                     6


Conclusions and Next Steps                                                                                                                          9


Figures and Graphs                                                                                                                                           10


References                                                                                                                                                      18

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