Last week we asked about the market reaction to the Russian silent invasion of Crimea. The data were not yet in. Now the data are in.
Above is the RTS index for the past two weeks. The collapse on Monday, March 3rd, is hard to miss. There is a recovery over the next two days, but it is only partial. The markets did not like the Russian invasion.
That would seem to be clear-cut. The problem is that a slightly longer view muddles the issue. The vertical bars show intra-day variation, with the horizontal lines being the open and close.
On this view, the markets were terrified of an all-out war and with good reason. It would cut off most Russian gas exports through Ukraine, directly slamming the economy, and court severe Iran-style sanctions from the west ... if not outright combat. Once that fear passed, the previous downward trend reasserted itself.
If you doubt the severity of the panic, consider that the Russian central bank had to raise interest rates on Monday. That is not something that a central bank would do lightly.
In short, unlike the Russo-Georgian War of 2008, the markets did care about the appearance of Russian troops in Crimea. But it is not clear whether they are punishing Russia for the violation of international norms or whether they were panicky about the impact of an all-out interstate war right along the biggest gas export routes.
These are very different things with very different implications for international relations in the 21st century. Any ideas for how to sort it out?