How did African stock markets react to the Russia-Ukraine crisis "black-swan" event? Empirical insights from event study

The paper examines the impact of Russia’s invasion of Ukraine (declared on February 24, 2022) on African stock markets. Given Africa’s substantial trade links with Russia and Ukraine—particularly in cereals (notably wheat), energy products, and other commodities—the war and ensuing sanctions were expected to disrupt trade, fuel price increases, and heighten geopolitical risk. The authors argue these shocks could spill over into African financial markets, affecting investor sentiment, capital flows, and stock performance. The study fills a gap in the literature by focusing specifically on African markets, as most prior research assessed global, G7/G20, or European responses. The research question is how African stock markets and leading firms reacted around the war’s onset, and whether reactions were heterogeneous across countries and sectors. The study’s importance lies in informing policymakers and investors about market resilience, contagion risk, and sectoral vulnerabilities in Africa during a major geopolitical shock.

The literature review synthesizes evidence on market reactions to the Russia-Ukraine war and broader geopolitical risks. Studies on G7 and European markets (Abbassi et al., 2022; Ahmed et al., 2022; Berninger et al., 2022) document negative abnormal returns and heterogeneous impacts across countries, sectors, and firm characteristics such as trade dependence and exposure. Global analyses (Boubaker et al., 2022; Boungou & Yatié, 2022; Yousaf et al., 2022) report broad-based negative effects on equity markets, with variation linked to globalization and institutional alignment (e.g., NATO membership). Other strands cover market connectedness and macro expectations (Umar et al., 2022; Depalo, 2022) and show altered transmission of shocks and lower economic expectations, especially for energy-dependent countries. Additional work explores sectoral and asset-class responses, including tourism (Pandey & Kumar, 2022), oil (Ruiz Estrada et al., 2019), currencies (Chortane & Pandey, 2022), and cryptocurrencies (Long et al., 2022). Emerging-market research highlights that increases in geopolitical risk can predict higher future stock returns under certain conditions (Zaremba et al., 2022). Despite extensive global and regional analyses, the review finds a gap on African stock markets’ responses to the war, motivating this study’s regional focus.

Data comprise daily prices for 20 securities drawn from 10 African countries, including leading country indices and the most capitalized firms, sourced from the Bloomberg Terminal. Countries and securities include Egypt (EGX30; Commercial International Bank), Ivory Coast (All Share Index; SONATEL BC Equity), Kenya (Nairobi All Share Index; Safaricom Kenya), Mauritius (SEM; MCB Group Ltd), Morocco (Casablanca Index; Attijariwafa Bank), Nigeria (NSE ASI; MTN Nigeria), South Africa (FTSE/JSE All Share; AVI Equity), Tanzania (All Share Index; CRDB Bank PLC), Tunisia (Tunisia Stock Exchange; Banque de Tunisie), and Zimbabwe (Delta Corp. Ltd; Econet Wireless Zimbabwe). The sample spans January 5, 2021 to August 5, 2022 (weekdays). Returns are computed as R_t = ln(P_t/P_{t-1}). Stationarity (ADF) indicates returns are I(0). The event study follows Fama et al. (1969). The event date is February 24, 2022. The estimation window is 120 trading days from t−125 to t−6, and the event window spans from t−5 to t+20. Expected returns are estimated via the market model R_it = α_i + β_i R_mt + ε_it. Abnormal returns (AR_it) are AR_it = R_it − (α_i + β_i R_mt). Cumulative abnormal returns (CAR_i) over [T0, T1] are CAR_i = Σ_t AR_it, with cross-sectional aggregation yielding average abnormal returns (AAR) and cumulative average abnormal returns (CAAR). To address cross-sectional dependence and variance issues, the study reports conventional t-tests alongside the Patell (1976) standardized residual test and the Crude Dependence Adjustment (CDA) test (Brown & Warner, 1980), for both AAR and CAAR across multiple pre-, around-, and post-event windows.

- On the event day (Feb 24, 2022), 14 of 20 African stocks exhibited negative abnormal returns (AR). Of these, nine were statistically significant. Significantly negative AR were observed for: Safaricom Kenya, Commercial International Bank, Attijariwafa Bank, Morocco Casablanca Index, Egyptian Exchange 30, Nairobi All Share Index, MCB Group Ltd, Stock Exchange of Mauritius, and FTSE/JSE All Share (per Table 2 tests: conventional, Patell, and CDA). - Six stocks had positive AR on the event day: Ivory Coast All Share Index, CRDB Bank PLC, Nigerian Stock ASI, MTN Nigeria, Econet Wireless Zimbabwe, and SONATEL BC Equity. - Aggregate market reaction: The cross-sectional AAR on the event day was −1.641% and statistically significant at the 1% level across all three tests. AAR trended negative in the five days before the event, consistent with anticipation of invasion. - Recovery and persistence: Following a brief rebound on days +1 to +5, returns turned negative again from +6 and remained weak through approximately +13, when the worst post-event CAAR of about −3.7% over [0, +13] was recorded. - CAAR patterns: Pre-event windows showed significant negative CAARs, with the largest pre-event impact over [−3, 0] at roughly −2.4%. Around the event, multiple windows (e.g., [0;0], [−1;1], [−2;2], [−3;3], and [−10;10]) were negative and significant; [−10;10] CAAR was about −1.6%. Over the widest symmetric window [−20;20], CAAR was positive but reflects dynamics extending beyond the acute impact period. - Heterogeneity across countries and firms: Country indices generally posted negative abnormal returns around the event, with Morocco, Mauritius, Kenya, Tanzania, and South Africa showing notably weak post-event performance in several windows. Firm-level results show telecommunications names (e.g., Safaricom Kenya) among the most adversely affected around the event day. Some domestically oriented or differently exposed securities displayed resilience or positive AR on the event day. - Interpretation: The heterogeneous responses likely reflect differences in trade exposure, currency movements, sectoral composition, and market domestication, as well as investor flight-to-safety behavior.

The study directly addresses whether and how African stock markets reacted to the Russia-Ukraine invasion. Evidence of significantly negative AAR/CAAR around the event confirms that African equities were adversely impacted, consistent with global findings on geopolitical shocks. The heterogeneous magnitude and direction of responses across countries and firms indicate varying levels of exposure to trade disruptions, commodity-price shocks, currency volatility, and market structure. The brief rebound after the event day followed by renewed weakness suggests an initial overreaction correction tempered by continued uncertainty and evolving conflict dynamics. These results align with prior literature documenting negative and uneven effects across regions and sectors, while the African focus provides localized insights into market resilience, contagion risk, and sectoral vulnerabilities. The findings imply that policy and investment strategies should be tailored to country-specific conditions and structural characteristics to bolster resilience against external shocks.

This paper contributes by providing the first focused event-study evidence on African stock markets’ reactions to the Russia-Ukraine war, using a standardized methodology with robustness checks (Patell and CDA). The main contributions are: (i) documenting significant negative abnormal returns on the event day for most markets and negative CAARs around the event windows; (ii) establishing heterogeneous responses across countries and sectors, with some firms—particularly telecom—exhibiting pronounced declines, while a minority showed resilience; and (iii) detailing the temporal dynamics of AAR/CAAR before and after the event. Policy recommendations include: strengthening regulatory frameworks to enhance transparency and investor protection; leveraging technology to improve market efficiency and access; expanding investor education to reduce panic-driven selling; diversifying product offerings to broaden investor bases; encouraging long-term institutional investment to dampen short-term shocks; and promoting regional integration to deepen liquidity and reduce contagion risk. Future research should extend the time horizon to capture longer-term effects, examine broader sets of African markets and sectors, and incorporate additional channels (trade, commodities, FX) to better explain cross-country heterogeneity.

- Regional focus: Results pertain to selected African markets and may not generalize to other regions with different geopolitical or market structures. - Timeframe: The sample (Jan 5, 2021–Aug 5, 2022) captures short- to medium-term effects and may miss longer-term adjustments and subsequent war developments. - Coverage: Due to data availability, only 10 countries and leading firms were included; broader coverage could refine heterogeneity assessments. - Methodological assumptions: While robustness tests (Patell, CDA) are employed, event-study assumptions (e.g., model specification, cross-sectional dependence) and market-model reliance remain potential sources of bias.