Influence of Currency Risk on Asset Pricing on Emerging Markets

There is still no agreement about the issue of the Russian stock market currency exposure. This research contributes to the literature on this topic. Recent changes in Russian economy environment were analyzed and a model which helped to take into account important features of Russian stock market environment was built. Using two-step model, the investigation studied whether Russian companies stock return is currency risk exposed was performed. The model testing of which is based on using the data of 2009-2016, 2009-2012 and 2013-2016 time periods of Russian capital markets and Russian companies gave the following key findings: 1) currency risk is priced on the Russia’s stock market and investors’ attitude to this risk became more loyal since 2013 on the back significant changes in the Russian economy, 2) Russian companies stock is especially sensitive to exchange rate fluctuations if these fluctuations are happening in circumstances of Russian ruble fundamental over- and undervaluation which might be a sign that there exists a comfortable level of exchange rate violations exceeding which lead to greater reaction of stock return to exchange rate changes.