Systemic Investment Risk Measures on BRICS Markets: an Empirical Study

CAPM, based on the Markowitz works, links returns of financial assets to their systematic risk. The model is prevalent in the financial market and used by investors to determine the required return of the security for a given level of risk, as well as managers, owners and borrowers to assess the company's cost of capital. Nevertheless, application of CAPM in the emerging markets can be theoretically challenged relatively to rather strict model assumptions, specifically the consideration of the two-sided variance as risk measure. In this work, there is the review of the various modifications of the CAPM, regarding other risk measures, and empirical researches, exploring these models in both developed and developing markets. Besides, we conduct own empirical study on the data BRICS stock markets for the various periods of the economic conjuncture. The results show that no one of discussed risk measures can be applied in the entire sample period. The best way the risk measures explain the returns of financial assets in the stable period of strong growth in all BRICS countries. However, in times of crisis everywhere, except in Russia and South Africa, there is a negative correlation between the returns and the considered risk measures.