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Modelling financial returns and portfolio construction for the Russian stock market


  • Alexey I. Balaev


In this paper, we consider multivariate models for returns on Russian equities based on normal distribution, t-distribution with scalar degrees of freedom parameter and t-distribution with vector degrees of freedom parameter. Our models capture autocorrelation, volatility clustering, dynamic links among equity returns and their volatilities, as well as the heavy tails of marginal distributions. Multivariate t-distribution with vector degrees of freedom parameter is a recent generalisation of the classic multivariate t-distribution and in the present paper it is applied to Russian financial data for the first time. Using our multivariate models we construct financial portfolios with conditional minimum variance and conditional maximum expectation of return. We compare optimised portfolios according to the risk and benefit of investment and analyse how the results of this comparison depend on the liquidity of equities involved.

Suggested Citation

  • Alexey I. Balaev, 2014. "Modelling financial returns and portfolio construction for the Russian stock market," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 4(1/2), pages 32-81.
  • Handle: RePEc:ids:ijcome:v:4:y:2014:i:1/2:p:32-81

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    Cited by:

    1. Iuliia S. Pinkovetskaia & Irina N. Nikitina & Tatiana V. Gromova, 2018. "The Role of Small and Medium Entrepreneurship in the Economy of Russia," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 14(3), pages 177-188.
    2. J. Pinkovetskaya & ЮЛИЯ Пиньковецкая СЕМЕНОВНА, 2016. "Анализ Отраслевой Локализации Малого И Среднего Предпринимательства В Регионах // Industrial Localization Analysis Of Small And Medium Entrepreneurship In The Regions," Управленческие науки // Management Science, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 6(2), pages 70-82.
    3. Fantazzini, Dean, 2014. "Editorial for the Special Issue on 'Computational Methods for Russian Economic and Financial Modelling'," MPRA Paper 55430, University Library of Munich, Germany.


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