Cross-Sectional Examination of Classic Asset Pricing Models on the Russian Stock Market

Emerging stock markets are generally considered the highly profitable opportunity for global investors. However, their relative instability, especially disclosed in high volatility and lower trading volumes, makes the forecast of returns on these markets extremely difficult. In this paper, we test the forecast accuracy of classic asset pricing models, namely capital asset pricing model (CAPM) and several specifications of multifactor asset pricing models with time-varying risk factor measurements to predict returns of Russian stocks. CAPM with time-varying beta is found to be the most successful, but still highly unreliable model among classic asset pricing models to explain excess returns of Russian stocks.