Are short stocks susceptible to geopolitical shocks? Time-Frequency evidence from the Russian-Ukrainian conflict

The geopolitical conflict between Russia and Ukraine has noted derailing impacts on financial markets. Since tensions from geopolitical risks (GPR) can amplify pessimistic views of investors, we envisage this issue from the position of shorted stocks. In a wavelet-based analysis, we examine the impact of the Russian-Ukrainian military conflict on different economic sectors. We found strong and high comovements between shorted stocks and GPR. The lead-lag dynamics evidence that hedging strategies with shorted stocks would be beneficial, particularly in the very short-term. The findings are important for policymakers, practitioners, investors, and risk managers during black swan events like military conflicts