Capital asset pricing models and Russian stock market. Part 2. Modified CAMP applicability

Applicability of the Black’s two-factor CAPM version in the Russian stock market is tested. Selecting explicit factors influencing risky assets return allows not only to evaluate the degree of Russian market’s effectiveness but also to determine structure of non-observable market portfolios, and to draw certain conclusions about investors’ behavior in the Russian market. Other CAPM versions’ applicability in the Russian market is discussed. Such models were suggested to apply in other emerging markets, and assume that asset riskiness is determined by certain empirical factors unlike classic CAPM assumption that risk is determined by the degree of uncertainty of returns (variance of return). Specifically, special emphasis is given to D-CAPM model, which suggests that investors are more concerned with risk of receiving negative returns. Such risk interpretation is assumed to be more appropriate for rational investors in highly speculative markets, namely Russian stock market. Testing results obtained imply that D-CAPM approach is more appropriate in the Russian stock market than classic CAPM models.