Russian stock market efficiency


In a current stock market state of affairs many analysts believe that the fiscal crisis is merely the market rectification. Based on this premise we can state that the recession should do the stock market more crystalline and efficient. In order to …… . Using different market efficiency theoretical accounts the Russian stock market will be analyzed and compared the information before the fiscal crisis and during the recession. We apply market efficiency theoretical accounts to the returns from the two chief indexes of the Russian stock market, running from September 2007 to the terminal of September 2009

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The Russian Stock market has passed for last 15 old ages has changed from the passage to the emerging market.

Formal standards of definition of Stock market development by The World Bank are indicated below:

1. The stock market maps in the state with high degree of Economic development ;

2. Market capitalisation is comparable and even surpasses gross national merchandise of the given state. [ 1 ]

Natural add-on to the standards listed supra, in bend, are the attacks gauging degree of development/backwardness of the stock market on the footing of possibility of an appraisal and prediction of alteration of the monetary values in the given concrete market. One of the basic divisions of the market in this instance is division into the efficient and inefficient markets. For last decennary the set of researches on the given topics both for developed and developing states has been done. Among such researches – plants of such writers as Moris Kendel, Eugene Fama, Andrew Lo, Kreg Makkinli ) . Consequences of the given researches have confirmed correlativity between efficiency and development, and besides have defined a figure of “ qualitative ” theoretical accounts for an efficiency appraisal.

As a consequence of perusal of researches on the given topics were

Main aims of the given work are formulated:

O Ordering of the basic methods applied to an appraisal of efficiency ;

O The analysis of possibility of application of the basic quantitative methods of an appraisal of the efficiency, offered in the theory, to the Russian pattern ;

O An appraisal of efficiency of the Russian stock market during the pre-crisis period ( the minute of the expiration of the period of an appraisal – September, 2008 ) and during the recession ( the minute of the expiration of the period of an appraisal – September, 2009 ) .

The urgency of the given research is caused by the undermentioned fortunes:

O The function of the stock market as manner of attractive force of the extra capital will increase further in this connexion quality criterion of a market state of affairs accepts important for research workers and investors the intent ;

O In a current state of affairs of fiscal crisis, crisis of liquidness importance of an appraisal of quality of the created market, and besides an appraisal of current degree of efficiency foliages on the foreground ;

O Efficiency of the stock market makes indispensable impact on a state fiscal system, allows to cut down degree of system hazards, to raise a transparence of dealing and to cut down degree of monetary value fluctuations that by and large promotes growing of entreaty of the market from places of strategic investors and proves importance of acquisition by the Russian market of features of the effectual.

Object of research is the hypothesis of efficiency of the market with mention to current conditions of the Russian stock market, and besides an appraisal of efficiency of the pre-crisis stock market of Russia. Object of research – the market of the most liquid actions of the Russian stock market ( alleged «blue cheeps» ) .

For accomplishment of the intents of the given work following jobs have been put:

O To transport out the general analysis of kineticss of development of the Russian stock

The market to see kineticss of capitalisation, market indexes,

Structure of the stock market during the current and pre-crisis period ;

O To transport out the analysis of bing methods of an appraisal of stock market efficiency and on its footing to transport out a pick most tenable methods of an appraisal of efficiency for the subsequent applications to the Russian pattern ;

O To analyse practical consequences of the chosen methods with mention to the Russian market in the conditions of the fiscal crisis ( the minute of the expiration of the period of an appraisal – 2009 September ) and to pre-crisis degree of development ( the minute of the expiration of the period of an appraisal – September 2008 ) .


* Market efficiency – determines the grade to which stock monetary values reflect all relevant information. Market efficiency has changing grades: strong, semi-strong, and weak. Stock monetary values in a absolutely efficient market reflect all available information. These differing degrees, nevertheless, suggest that the reactivity of stock monetary values to relevant information may change. [ 2 ]

* Recession – a important diminution in activity across the economic system, enduring longer than a few months. The planetary recession of 2008-2009 brought a great sum of attending to the hazardous investing schemes used by many big fiscal establishments, along with the truly planetary nature of the fiscal system.

* market rectification – A comparatively short-medium term bead in stock market monetary values, by and large viewed as conveying overpriced stocks back to a degree closer to companies ‘ existent values. In proficient analysis, a reversal in the way of monetary values following a period of sustained monetary value motion. The term frequently is used informally to bespeak that the market or the monetary value of a stock or trade good has changed waies [ 3 ]

1 Chapter

1.1 Russian stock market characteristics

Established in 1995, as the first regulated stock market in Russia, RTS Stock Exchange now trades the full scope of fiscal instruments from hard currency equities to trade good hereafters.

The RTS Index foremost calculated on September 1, 1995, has since become the chief benchmark for the Russian securities industry and is based on the Exchange ‘s 50 most liquid and capitalized stocks.

Today ‘s RTS merchandise line includes:

O RTS Standard, a new front-rank equity market for the most liquid Russian securities characterized by absence of 100 % plus depositing, standard T+4 colony in rubles, usage of CCP engineering, amalgamate hard currency place on RTS Standard and on FORTS, RTS derivatives subdivision and portfolio-style attack to margining topographic point and derived functions markets places.

O RTS Classica, the lone trading platform in Russia that allows for colony in both rubles and foreign currency. RTS Classica is every bit accessible to both Russian and foreign investors. The standard colony rhythm is T+4 DVP. There are no demands to lodge securities and hard currency before a trade. Over 500 securities are merchandising on this market.

O RTS T+0 Market, securities trading for retail investors with full preliminary sedimentation of assets and ruble colony.

O RTS Board, the quote-driven market for unlisted stocks and bonds.

O FORTS, hereafters and options market with ruble colony. Trading since 2001. Today, 47 contracts are offered ( 34 hereafters and 13 options ) on stocks of Russian companies, bonds, short term involvement rates, currency, RTS Indices, oil, oil merchandises, metals and sugar. The most active contract is hereafters on the RTS Index. [ 4 ]

The RTS Stock Exchange calculates and publishes 9 indexes: RTS Index, RTS-2 Index, and 7 sectoral indexes. The RTS Index and the RTS-2 Index are calculated utilizing two different lists of stocks.

The RTS Index, RTSI, the official Exchange index, foremost calculated on September 1, 1995, is similar in map to the Dow Jones Average in New York City. In contrast with an unweighted ( bad ) index, the RTS index is much more stable with regard to crisp oscillations of a individual stock monetary value, since companies with big capitalisation make the chief part to the index. As a regulation, the stocks of such companies are highly tolerant to the fleeting behaviour of single participants.

The Russian stock market exists the little more than 15 old ages and for this period its basic features have been changed basically. It concerns the general construction, the basic trading platforms, trade regulations and construction of participants etc.

The Russian market of capitals, on one manus, is similar to many other emerging markets, on the other manus – the Russian market is based on economic system of the former superstate, with the big endeavors and high capitalisations. Despite the destructive character of a passage period and decomposition of the USSR, the Russian economic system already is in force of the graduated tables possesses a development more possible.

The term «the formed market» ( emerging market ) designate

The stock market which is in procedure of development, that increases on size, activity, complexness of the organisation. In general instance, the stock market is considered to be emerging if it corresponds at least to one of the undermentioned standards

1. The stock market is in the state with low or in-between degree of economic development, ( in footings of World bank )

2. Market capitalisation is low in relation to gross national merchandise of the given state.

The states with high degree of the income, on categorization World Bank, are the states in which GNP throughout last three old ages per capita made a 10 thousand dollars order per twelvemonth. Low degree of capitalisation means that the relation of capitalisation of the market to gross national merchandise of the state is less, than at 25 % most

The developed emerging markets which are of involvement for universe investors. The stock market on which there are limitations on foreign investings, serious province intercession in activity of the stock market, can non be developed. The status of a domestic securities market up to crisis 1998 was about wholly defined by a province policy in the field of issue and placing of the province promissory notes. The province loans took topographic points under the ultrahigh monetary values, refering the general degree of favorableness in economic system and for short term, therefore the system of ordinance of a public debt practically was absent. A bend on operations with the province documents made more than 85 % of all market. Scales of issue which conducted to crisp addition of a public debt ( an internal debt has reached to the center of 1998 25.6 % of gross national merchandise ) , have served one of the grounds of crisis of 1998

1.2 Influence of fiscal crisis on the Russian stock market indexs.

1.3 Stock market efficiency

We define a fiscal market as efficient if all publically available information is to the full exploited so that there are no unnatural net incomes. In the fiscal economic sciences literature, there are two facets of the efficiency of fiscal markets, viz. the operational efficiency and the allotment efficiency. The former requires that the participants providing and demanding financess are able to transport out minutess stingily, while the latter requires that the monetary values of securities are such that they equalize the risk-adjusted rates of return across all securities ( i.e. securities with the same degree of hazard will offer the same expected return ) . In an allotment efficient market nest eggs are allocated to productive investing in an optimum manner and all participants in the market benefit. These two types of efficiency are strongly linked. Operational efficiency can be straight measured reasonably easy in the signifier of bid-ask spread and committee rates. We therefore concentrate on the inquiry of mensurating the extent of allotment efficiency. This impression of efficiency is frequently redefined in footings of assorted types of efficiency as follows. A market is weak efficient if security monetary values to the full reflect the information contained in past monetary value motions. That is, they do non follow forms which repetition and it is non possible to merchandise productively strictly on the footing of historical monetary value information. A market is semi-strong efficient if security monetary values to the full reflect all publically available information. That is market participants can non do superior returns by ‘searching out ‘ information from publically available beginnings, since the information is already incorporated into security monetary values. A market strong efficient if security monetary values to the full reflect all relevant information whether it is publically available or non. In such instance, no investor could of all time gain systematically superior returns ( even an insider with his inside cognition ) .

As a failure of weak signifier efficiency implies a failure of semi-strong and strong signifier efficiency, we confine our analysis to this most basic impression of efficiency as it may be the instance that the Russian markets have non even run into this status yet.

2 Chapter the description of the basic stock market efficiency theoretical accounts and analysis.

2.1 Local Expectation Hypothesis ( LEH ) theoretical account

One of indirect methods used by many scientists, applicable for an appraisal of the stock market efficiency is Local Expectation Hypothesis, LEH [ 5 ]

The basal version of which was Modigliani – Miller expression [ 6 ] :

Pt = ( 1 + R ) ?? E ( P t+1 ? ? T )

( 2.1.1 )

Where Pt, P t+1 are the assets equilibrium monetary value during the periods T and t+l.

In instance if there is a stock alternatively of plus the expression can be modified:

Pt = ( 1 + R ) ?? E ( Dt +P t+1 )

( 2.1.2 )


D – the hard currency flow generated from assets, in this instance it represents dividends ;

T E – estimated future value

r – effectual rate of return ( the norm rate of return from alternate investing tools ) .

In instance of sempiternity expression can be changed:

E ( dPt ) + D? dt = Pt ? rt ?dt

( 2.1.3 )

Where dPt= Pt+dt – Platinum

if D=0 the expression will be:

E ( dPt ) = Pt ? rt ?dt

( 2.1.4 )

Formulas ( 2.1.3 ) and ( 2.1.4 ) mean that demanded short term mean rate of return on plus is equal to the alternate rate of return. As were mentioned above, expression LEH represents the fundamental of rational outlooks hypothesis. If investor has an estimated system of behaviour of the rate of return in a short term, this expression allows him to acquire the equilibrium monetary value of different assets. [ 7 ]

Basically of import premise, leting look intoing up the given hypothesis through empirical observation, that investors do non anticipate a fast alteration of a stock market tendency.

K.Frut and M.Obstfeld have brought a cardinal part to the given method ciphering the colony equilibrium monetary value of an plus ( 2.1.2 ) , based on statistical appraisal. [ 8 ]

2.2 Models based on the arbitrage theory of pricing.

3 Chapter. Empirical analysis of the Russian stock market efficiency.

As already stressed earlier, the purpose of this paper is to measure through empirical observation whether the

Russian equities market has become less auto-correlated, which we like to construe as a status of increasing weak signifier of efficiency of the market. In add-on, our theoretical accounts allow us to prove whether the market has been affected by macro and qualitative factors, and eventually if there is any presence of hazard premium. We use general stock index and a few to a great extent traded single stocks. We begin by sing the stock index.

Russian Stock Index

[ 1 ]

[ 2 ]

[ 3 ] hypertext transfer protocol: //

[ 4 ]

[ 5 ] Maringales and Arbitrage in Multiperiod Securities Markets” , Harrison M, Kreps D. Journal ofEconomics, 20, 1970, p. 381-408

[ 6 ] “Dividends Policy, Growth and rating of stocks” , Miller M, Modigliany J, Journal of Business, 1961,34, 411 – 433

[ 7 ] “The rating of drifting rate instruments” . Sundaresan S. , Journal of Financial Economics, 20, 251

[ 8 ] Instrinsic Bubbles: The Case of Stock Prices” , Frut K. , Obstfeld M. , American Economic Review,1999, 81 ( 5 )

[ 9 ]


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