Risk and return in the Russian stock market : Is Russia different?

Abstract

This master thesis studies the difference between risk and returns in the Russian stock market compared to the BRIC and other emerging markets during the period 2002-2012, using daily, weekly and monthly data. The goal is to find whether Russian stocks should be considered as a separate asset class. T-test, F-test, t-test according to Jobson&Korkie were conducted for testing of significant difference between parameters. The empirical results showed that returns on the Russian market are different from the other BRIC’s and emerging markets. The log returns showed that Russia had one of the highest returns during the period before the crisis, but had the lowest returns during and after the crisis. Discrete returns indicated the same tendency. Total risk in the Russian market can be different from the other markets, though the differences are relatively small. Russia and Brazil are averagely more volatile than the other emerging markets, and no proof for difference of their volatilities is found. Russia is also is more volatile than India, China and the average emerging market during the whole period. This was similar for the separate periods. No significant proof for clear difference between systematic risks (betas) is found, though difference between unsystematic risks is proven, and Russia has the highest one. Although the compared shares of systematic risk is neither low no high during the second period. Risk-adjusted returns couldn’t be claimed different, though the tendency was similar to the plain returns. All these findings indicate that Russia is quite different from the BRIC group, though some resembling features among them are found. Russia is recommended as an asset having great potential. Portfolios using Russia and World in different combinations are compiled in order to increase returns for the international investor.