The market dynamics of military conflict financial returns and strategic considerations in the global arms industry

Implementing an event study methodology for the February 2022 Russian invasion of Ukraine and for the October 2023 Hamas attack on Israel, we look at the stock returns of the globe’s largest arms-producing and military services companies. Our analysis finds that these two recent military actions had sharply different impacts on financial markets. Arms companies averaged 10 percentage points of cumulative abnormal returns (CAR) after the Russian invasion, but after the Hamas attack, CAR was indistinguishable from zero. Given that the Hamas attack was a surprise to nearly everyone, but the Russian attack was the accumulation of a building tension, the results are even more paradoxical, as the anticipated attack had substantial impacts on financial markets while the surprise attack had no apparent impact. We argue that the different reaction of policymakers can be an explanation for such results.