The Key Drivers of the Target P/E Ratio of the Russian Stock Market

Substantial divergence of P/E ratio from its notionally normal values is typically regarded as an indicator of potential mispricing. Thus, P/E multiple being considerably lower its historical norms or a significant divergence between the indices for a set of similar underlying assets attracts attention and raises question about the nature and the reasons for such a gap. In this respect, the broad index of Russian stock market is of particular interest when comparing it with similar foreign stock market indices. Significant discount at which Russian market-wide MICEX index is being traded has become the major motive of the present research paper. The current study aims to investigate the reasons for the substantial discount applied to Russian stocks on the market and determine previously unexplored factors that may justify the reason for the Russian market-wide index having the lowest ranking in a group of developed and emerging markets in terms of P/E multiple values. The key statistical tool used in the research is the panel data analysis conducted on a sample of 16 countries over the period 2005−2015. Results of empirical research demonstrate that the low values of the P/E multiple of the Russian stock index can be explained by the insufficient corruption control and low level of property rights protection.