Determinants of systematic risk: Evidence from the Russian stock market
<b>Importance</b> The paper examines a systematic risk or beta of the Russian stock market and its determinants. <br></br> <b>Objects</b> The aim of the research is to estimate the systematic risk of general and sector indexes of the Russian equity market in relation to the international market, find its determinants and define the contribution of global, local and sector factors to these risks. <br></br> <b>Methods</b> I employ the DCC-GARCH model to estimate time-varying betas, which I use to find determinants of the Russian stock market’s systematic risk. <br></br> <b>Results</b> Local, global and sector factors have a significant impact on the Russian beta indexes. Among local factors, the consumer inflation, money supply M1 growth and industrial production index changes have the largest influence in most cases. As for global factors, USD inflation and USD index were significant. The analysis shows that sector factors poorly affect the beta dynamics. The findings may be useful for potential investors, international banks and hedge funds interested in efficient portfolio building, diversification and mitigation of risks related to investing in Russian assets. The knowledge of factors impacting the systematic risk may also help regulators to carry out smart monetary and fiscal policy in order to reduce country risk. <br></br> <b>Conclusions</b> The results of the study contribute to understanding the inter-linkages of systematic risk in the global economy, in particular, regarding the Russian stock market and its sectors.