Geopolitical shocks and market memory: evidence from crypto and energy assets during the Russo-Ukrainian war

Hassen Raïs; Assen Slim

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The Russo-Ukrainian conflict significantly disrupts financial markets by increasing return predictability and volatility persistence, challenging the weak-form Efficient Market Hypothesis (EMH).
Both cryptocurrencies and energy assets exhibit increased long-term dependence (“long memory”) during the conflict, meaning shocks have more persistent and lasting effects on prices and volatility.
Despite structural differences, these asset classes behave more similarly during geopolitical crises, showing synchronized dynamics and reduced diversification benefits.
Increased persistence and volatility create short-term arbitrage opportunities but also make risk management more complex, requiring advanced models and more cautious portfolio strategies.

Abstract

This paper examines the impact of geopolitical conflict on the informational efficiency of financial markets. We focus on the performance of cryptocurrencies and energy stocks before and during the Russo-Ukrainian conflict to assess how their price dynamics changed in response to the 2022 shock. By analyzing long-term dependencies in both returns and volatility, we identify persistent shifts in market behavior that challenge the random walk hypothesis. Our results highlight a structural increase in price predictability and volatility persistence during conflict conditions. These findings have direct implications for forecasting strategies, portfolio allocation and arbitrage opportunities in times of geopolitical tension.

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