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Economic Analysis: Theory and Practice
 

Applying the excess volatility methodology in the Russian stock market

Vol. 13, Iss. 48, DECEMBER 2014

Available online: 19 December 2014

Subject Heading: METHODS OF ANALYSIS

JEL Classification: 

Pages: 15-25

Fedorova E.A. Financial University under Government of Russian Federation, Moscow, Russian Federation
ecolena@mail.ru

Senachin S.V. OOO "AT Consulting", Moscow, Russian Federation
s.senachin@gmail.com

The authors propose using the excess volatility methodology in the Russian stock market. The methodology is up-to-date, however, earlier it has not been applied in the Russian securities market. The Matlab R2009a software is special software to implement the methodology. The software includes the functionality of data upload and preliminary data processing on share quotations, calculation of parameters of a model, portfolio formation, calculation of average parameters of portfolios, and result output. As an empirical base, the authors used data on daily quotes of 459 shares in three time slots: the entire period (01.03.2004-01.03.2014), the crisis of 2008 (01.06.2008-01.01.2009), and the post-crisis period of 2008 (01.01.2009-01.03.2014). The authors compare six strategies, which showed the best and the worst results of return on shares on three tested time intervals. On the tested time interval "the entire period", the best strategy showed the results, which considerably outperformed the results of the MICEX index. The worst strategy showed the results comparable with the yield and the risk of this particular index. On the "crisis" time interval, the best strategy showed positive return on shares, unlike the MICEX index with comparable risk. The worst strategy has shown the results, which slightly exceeded the index results. On the time interval "after crisis" the best strategy showed positive yield results of the MICEX indexes, which approximately two times exceeded the results of the MICEX index at comparable risk level. The worst strategy showed a lower rate of return in comparison with the MICEX index. The excess volatility methodology can be used by investors to build an effective investment strategy.

Keywords: investment, stock market, formation, management, share portfolio optimization, excess volatility

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