The Impact of International Sanctions on Russian Financial Markets

Mirzosaid Sultonov

doi:10.3390/economies8040107

Abstract

Russia’s international comportment and geostrategic moves, particularly the invasion of Ukraine and the annexation of Crimea in 2014, caused a substantial change in its international economic and political relations. In response to Russia’s invasion, the United States of America, the European Union, and their allies imposed a series of sanctions. In this study, by applying an exponential generalized autoregressive conditional heteroscedasticity model to daily logarithmic returns of the ruble exchange rate and the closing price index of the Russian Trading System, we analyze how the returns and volatility of the exchange rate and the stock price index responded to the sanctions and oil price changes. The estimation results show that the sanctions have a significant positive short-term impact on exchange rate returns. Economic sanctions have a significant negative long-term impact on the returns and variance of the exchange rate and a significant positive long-term impact on the returns of the stock price index. Financial sanctions have a positive/negative long-term impact on the returns of the exchange rate/stock price index and a positive long-term impact on the variance of the exchange rate and the stock price index. Corporate sanctions have a positive long-term impact on exchange rate returns.

Highlights

Russia’s international comportment and geostrategic moves, the invasion of Ukraine and the annexation of Crimea between February and March 2014, caused a substantial change in its international economic and political relations
Except for one sanction related to the war in Syria, two sanctions related to the Russian presidential elections and three sanctions related to the Sergei Skripal incident in 2018, all other sanctions were linked to Ukraine
We model the logarithmic returns of the ruble exchange rate and the stock price index as a function of their prior returns, prior oil price returns and dummy variables for sanctions

Summary

Introduction

Russia’s international comportment and geostrategic moves, the invasion of Ukraine and the annexation of Crimea between February and March 2014, caused a substantial change in its international economic and political relations. In response to Russia’s invasion, the United States of America (US), the European Union (EU), and their allies imposed a series of sanctions. (on 4 March, Sergei Skripal, a former Russian military officer, and his daughter were poisoned in the city of Salisbury, England), all other sanctions were linked to Ukraine. As a response to the sanctions, Russia banned imports of certain foodstuffs from the EU and further enhanced its long-term import substitution policy aimed at economic sovereignty and ensuring the supply of important products, which had been the focus since the early 2000s.

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Results

Conclusion