Russian Stock Index volatility: Oil and sanctions

Abstract

Since 2014, the Russian stock market has been under pressure due to both sanctions and a sharp drop in oil prices, which led to its increased volatility. This paper analyzes the impact of the price volatility of Brent oil and sanctions on the volatility of the Russian stock index RTS. Under volatility the paper understands both its parametric estimate obtained from the GARCH model estimation as well as non-parametric estimate — realized volatility. To estimate the effect of oil price volatility and sanctions, several cointegrated regressions were analyzed. The robustness of the results in relation to the choice of volatility assessment is demonstrated. The results show that RTS index volatility still depends on oil prices volatility in 2007—2018. This dependence is most pronounced in the periods of crisis. The paper also demonstrates the adjustment of the Russian stock market to the previous sanctions, which calls into question their long-term efficiency.