Financial Market Information Flows When Counteracting Rogue States : The Indirect Effects of Targeted Sanction Packages

This study investigates how financial sanctions packages targeting Russia influenced traditional information flow dynamics with other international financial markets and products. While providing empirical evidence regarding the use of payment systems and finance as weapons of war, it is crucial to understand if the market's response to international sanctions diminished as expectations shifted over time. Results, along with robustness testing procedures, indicate the important dynamic information flows due to the Russia-Ukraine war relating to specific sanctions, particularly those surrounding the exclusion of Russia from the SWIFT payment system and those sanctions targeting banks and private wealth, resulting in significant contagion effects sourced from all Russian markets examined. Such influence is found to moderate and dilute as investors reconstruct their expectations and valuations. While targeted sanctions appear to impose intended market isolation, it is also associated with significant contagion effects. Although such secondary effects dissipate, they should be considered in implementing further targeted sanction packages