The Yield and Volatility of Financial Markets in the UK and China under the Russia-Ukraine Conflict
Keywords:Russia-Ukraine conflict; Externalities; Crude Oil; VAR; ARMA-GARCH.
The Russia-Ukraine conflict was officially fought on 24 February 2022, heightening international tensions and causing externalities to the global economy, resulting in the ensuing volatility of crude oil prices. Based on the broader context that the Russia-Ukraine conflict imposes significant downward pressure on international financial markets, this paper aims at finding the potential tie between stock markets volatility and increasing crude oil prices based on the timeline of this regional conflict and analyses the logic behind the relationship, using evidence from the UK and China as well as VAR and ARMA-GARCH models. The findings show that in terms of the fundamentals of stock market operations, in the short period following the outbreak of the Russia-Ukraine conflict, accompanied by a surge in oil prices, both in the UK and China markets, stock markets fluctuated dramatically and moved downwards rapidly over a short period of time. However, over time it is not possible to intuitively judge the medium to long-term impact on equity markets of the rise in oil prices caused by this situation. For policy makers, there is a package of monetary, fiscal and tax policies that can be implemented to counter the externalities caused by the Russia-Ukraine conflict. It is worth noting, however, that any policy has a corresponding cost. For investors, investment behavior depends on one's level of risk appetite, but the general advice is to avoid relevant investments in the short term in the event of an outbreak of the Russia-Ukraine conflict.
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