The Zelensky moment: investments in the defense industry and geopolitical risk awareness of European investors

Why do investors in Europe respond differently to similar geopolitical events? While prior research shows that geopolitical risk affects asset allocation, little is known about how awareness of geopolitical risks varies across countries and investor types. We examine this question by analyzing European investors’ reactions to rising tensions in Ukraine following Volodymyr Zelensky’s election in 2019, using detailed data from the European Central Bank on holdings of international defense stocks across 26 EU countries from 2010 to 2025. We use defense-stock holdings as a proxy for geopolitical risk awareness because they capture investors’ revealed preferences, reflecting how expectations about future cash flows and risk-adjusted returns change in response to geopolitical developments. This provides a direct, timely signal of investor attention that goes beyond traditional survey- or news-based indices such as the GPR index. Our analysis shows that investors in countries formerly under Soviet influence increased their defense-stock holdings more than those in Western Europe, with the effect being strongest among retail investors. These differences emerge gradually as tensions rise but increase substantially after Zelensky’s election, consistent with heightened attention to geopolitical developments in countries geographically and politically closer to Ukraine. By capturing early investment responses to geopolitical events, our study provides a novel perspective on how location and investor type shape awareness of geopolitical risks.