INVESTING IN AN EMERGING MARKET: Systematic risk and fund performance in Russian stock market

Abstract: In this paper, we study systematic risk factors that influence returns in the Russian stock market and investigate how Swedish Russia and Eastern Europe funds have performed and managed their portfolio holdings in an emerging market environment. We find that the Russian stock markets exposure to systematic risk in other emerging markets is high and significant. Commodity risk and global currency risk are also important, although subjects to strong time variation, which persists cross sectors. Swedish Russia and Eastern Europe funds manage these risk factors by reducing their overall portfolio holdings’ exposure to the systematic market risk. This enables them to over perform the market index and generate positive excess returns, mainly through long-term strategic investment decisions.