Time-varying global and local sources of market and currency risks in Russian stock market |
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| Authors: | Kashif Saleem Mika Vaihekoski |
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| Institution: | 1. Manchester Business School, University of Manchester, Booth Street West, Manchester, M15 6PB, UK;2. University of Aberdeen, Edward Wright Building, Dunbar Street, Old Aberdeen, AB24 3QY, UK;1. University of Portsmouth, Portsmouth Business School, Subject Group of Economics and Finance, Richmond Building, Portland Street, Portsmouth, Hampshire PO1 3DE, United Kingdom;2. Helmut-Schmidt-University, Department of Economics, P.O.B. 70 08 22, 22008, Hamburg, Germany;1. Paris Sorbonne University, Abu Dhabi, United Arab Emirates;2. EconomiX-CNRS, Université Paris Ouest Nanterre — La Défense, 200 avenue de la République, 92001 Nanterre Cedex, France;1. University of Valencia, Valencia, Spain;2. Cass Business School, City University London, UK;3. Public University of Navarre, Pamplona, Spain |
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| Abstract: | In this paper we study international asset pricing models and the pricing of global and local market risks as well as currency risk in the Russian stock market from an international investors' point of view using weekly data from 1999 to 2009. In our empirical specification, we utilize the multivariate GARCH-M framework of De Santis and Gérard (1998). We find currency risk to be priced in the Russian market. The price of currency risk is found to be time-varying and affected for example by the price of oil. Moreover, our results suggest that the Russian market is partially segmented and the local market risk is priced in the market. Our model implies in-sample risk premium for the Russian equity market that is, on average, almost ten times higher than that of the US and that the Russian risk premium is on average caused mostly by the local and currency risk components. |
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