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Tag: Politics and Markets

War and Markets


Source: List of armed conflicts from Encyclopaedia Britannica (, returns are the Fama-French Market Return Series

The chart above (full data is provided on the last page) shows that median returns were positive following the onset of hostilities, even in the very short-term. The blue bars show the range of returns for each period and the blue dots represent the median results. The yellow + highlights the current Russia-Ukraine conflict. Finally, the note under each bar indicates the percentage of events resulting in a positive market return. The longer the timeframe, the higher the median return, which ranges from a 1% return one week later up to an 18% return one year later. So far, the current conflict is tracking in line with the median results.  

It seems logical that dramatic and horrifying events should have an equally dramatic impact on global markets. But in practice, major geo-political events and their downstream effects are extremely hard to anticipate and evaluate. Over time, markets tend to gradually process and absorb short-term shocks and other factors begin to outweigh the single event. While we have no way of knowing the eventual outcome of the current war and its implications, for long-term investors, staying the course is often the best course of action. 

Table of Armed Conflicts and Returns

Source: List of armed conflicts from Encyclopaedia Britannica (, returns are the Fama-French Market Return Series

From the Behavioral Viewpoint

What is Going On?

  1. War triggers our fight or flight instincts. We are on the lookout for danger and prepared to flee. Our two for one loss aversion encourages us to act to avoid potential loss

  2. Geo-political events and the constant chatter create a negative recency and availability bias, in which the never-ending stream of dramatic events have the potential to ruin everything.

  3. We overestimate our ability to evaluate events and their implications and underestimate the randomness of world events. This overconfidence bias can result in emotional decisions which lead to costly behavioral mistakes.

What can we do?

  1. Individual events are rarely a reliable basis for making investment decisions. Tune out the media when it comes to
    investments. Use a consistent approach to monitor the markets and the economy in order to keep emotions in check.

  2. Use needs-based planning to separate short and long-term investments and to insulate your investments from short-term
    noise. Follow a well-developed investment process that delivers critical discipline.

  3. Work with an experienced behavioral financial advisor. They can provide valuable perspective and coaching to help stay on
    track and remain focused on long-term plans and goals.

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