Russian invasion 2022: analysis of persistent volatility and return spillovers among IMOEX, WTI and Russian OT (10Y)

Catarina Revez Catarina Revez; Rui  Dias; Nicole Horta; Paulo  Alexandre; Paula   Heliodoro

doi:10.32015/JIBM.2022.14.1.8

PhD Catarina Revez School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
PhD Rui Dias School of Business and Administration, Polytechnic Institute of Setúbal, Portugal; CEFAGE-UE, IIFA, University of Évora, Portugal.
Nicole Horta School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
Paulo Alexandre School of Business and Administration, Polytechnic Institute of Setúbal, Portugal
Paula Heliodoro School of Business and Administration, Polytechnic Institute of Setúbal, Portugal

DOI: https://doi.org/10.32015/JIBM.2022.14.1.8

Keywords: Russian invasion of Ukraine; persistence; serial autocorrelation; arbitrage; portfolio diversification.

Abstract

Russia's invasion of Ukraine is creating instability in the financial markets, with European stock markets falling, and the effects reflected in energy and food prices. A war scenario brings with it a humanitarian crisis and it is the most vulnerable who suffer the worst consequences. Based on these events it is intended in this paper to test the persistence of returns on the IMOEX capital market, Russian Sovereign OT (10 YR), and the WTI oil index over the period April 24^th, 2017, to April 22^nd, 2022. To perform this analysis different approaches were undertaken to analyse, if: (i) do the analysed markets exhibit persistence in their returns? The results suggest that the returns do not follow the i.i.d. hypothesis from dimension 2, reinforcing the idea that time series returns are nonlinear in nature or have a significant nonlinear component, except for the Russian capital market, which was expected considering the results of the Ljung-Box (with squares of the returns) and ARCH-LM tests. These findings allow the creation of efficient portfolio diversification strategies, opening room for market regulators to take steps to ensure better informational information for investors operating in these financial markets.

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