Dynamic return predictability in the Russian stock market

This paper explores whether the relevance of a conditional multifactor model and autocorrelation in predicting the Russian aggregate stock return fluctuates over time. The source of return predictability is shown to vary considerably with information flow. In general, predictability of the Russian stock market return is at a high level. Autocorrelation increases during periods of low information flow. During periods of high information, conditional exposure to the local market risk and changes in oil price influence the expected return on the Russian stock market. The lagged global stock market factor and currency returns have insignificant influence.

► The source of return predictability varies over time in the Russian stock market. ► Both a conditional multifactor model and autocorrelation are important in predicting. ► The relevance of the first-order autocorrelation decreases with volatility ► The relevance of a conditional multifactor model increases with volatility. ► The local market risk and changes in oil price affect the expected aggregate return.