Lombard List formation as a distorting signal of the Bank of Russia

How do Russian market participants react to the decisions of the Bank of Russia on changes to the Lombard List? This paper examines the relationship between the inclusion of securities in the list and changes in returns and volatility of shares in Moscow Stock Exchange companies. To model the behavior of the volatility of stocks of companies, modified HAR-models were used, to model returns — a market model; the study was carried out for 5-minute, hourly and daily time intervals. As a result, it was found that in the period from 2014 to 2020, the addition of a security to the Lombard List, which occurred faster than 3 weeks from the date of issue, led to a significant increase in returns of stocks of companies and to a significant decrease in their volatility and the effects might be observed during several hours. Thus, market participants perceive such news as significant signals about the state of affairs in private companies, despite the initial goal of the regulator. Based on the results of the analysis, recommendations were also formulated for the Bank of Russia to change the mechanism of including securities in the Lombard List.