US Stock Market Reaction to Armed Conflicts: Direct Versus Indirect Military Involvement and Conflict Initiation Versus Termination

This study investigates the impact of different cases of armed conflict on the US stock market. It examines whether the market reacts differently in cases of direct versus indirect US military involvement in the conflict and at the initiation or termination of the conflict. The analysis is based on nine armed conflicts that took place from 2003 to 2022. The study utilizes an event study methodology and focuses on three sectors in the US stock market: Defense and Aerospace, Oil and Gas, and Alternative Energy. The results indicate that direct military involvement is generally associated with less favorable market responses, particularly during conflict initiation stages and within energy-related sectors. In contrast, conflict termination events frequently generate more positive market reactions, reflecting lower geopolitical uncertainty and reduced military exposure. Indirect involvement events, especially those related to the Russia–Ukraine conflict and the Russian intervention in Syria, are associated with more favorable responses in several sectors, particularly Aerospace and Defense. The study contributes to the literature by adopting a multi-conflict framework, distinguishing between direct and indirect military involvement, comparing conflict initiation and termination phases, and providing sector-level evidence on the heterogeneous effects of armed conflicts on financial markets.