European Journal of Business Science and Technology 2025, 11(2)

Geopolitical Shocks and Asset Pricing: Global Cross-Sectional Evidence from Defense and Aerospace Firms amid the Russia–Ukraine War

ATM Adnan¹, Md Arif Hasan Khan², Md Tapan Mahmud³, Sabira Kumkum³, Abdullah Al-Mamun⁴

¹ BGMEA University of Fashion & Technology, Dhaka, Bangladesh

² Northern University of Business and Technology, Khulna, Bangladesh

³ Bangladesh University of Professionals, Dhaka, Bangladesh

⁴ University of Wollongong, Australia

This study addresses a critical gap in geopolitical finance by examining the heterogeneous capital market reactions of 370 global defense and aerospace (D&A) firms to the 2022 Russia-Ukraine war. While the impact of geopolitical shocks on financial markets is well-documented, the specific determinants of intra-sectoral returns remain underexplored. Employing an event study methodology, this research quantifies abnormal returns around the invasion date and conducts cross-sectional analyses to test whether these returns are systematically moderated by firms’ home country attributes, including geopolitical alignment (G7 vs. non-G7), economic status, and national defense budget levels. The empirical results reveal a profound and statistically significant divergence: firms domiciled in developed, G7, and high-budget nations experienced large positive abnormal returns, while those in other national contexts suffered significant losses. Critically, the analysis finds no evidence of a firm-size “leadership premium,” as the performance difference between the industry’s largest firms and their smaller counterparts was statistically insignificant. These findings suggest the market’s reaction was a sophisticated assessment of sovereign fiscal capacity, where investors priced in a “geopolitical premium” for firms in nations with a credible ability to fund a military buildup, while penalizing those in fiscally constrained countries for perceived macroeconomic risk. This research contributes to the literature by demonstrating that during a systemic geopolitical crisis, a nation’s macroeconomic and political attributes can dominate firm-specific characteristics in driving asset valuation.

Keywords: geopolitical shocks, capital markets, event study, investor sentiment, defense and aerospace, Russia–Ukraine war

JEL classification: G11, G12, G14

Received: August 15, 2025; Revised: November 15, 2025; Accepted: December 23, 2025; Published: January 5, 2026  Show citation