Since the Russian attack on Ukraine, the West has been intensively discussing its support strategy. This IAB Discussion Paper analyses how the international financial markets have perceived this news.
A comprehensive dataset of war-related news was created and the reactions of five key financial markets were measured. The results show that stronger support for Ukraine had a negative impact in the first weeks of the war. Thus, financial markets seem to have perceived it as a risk of further escalation threatening global economic activity. However, we find the perceptions strongly changed when the Ukrainian position in the war improved. Since that time, a hawkish line was a positive signal for financial markets. The results also confirm that the war and escalation in general had harmful effects on international financial markets.