Investor Reaction to Economic Sanctions: The Case of Russian Global Depositary Receipts

Quantitative Finance and Economics, Volume 3, Issue 3, 425–439 (2019)

15 Pages Posted: 24 Jun 2019 Last revised: 5 Jul 2019

See all articles by Oksana Kim

Oksana Kim

Minnesota State University

Date Written: June 19, 2019

Abstract

We examine the impact that the economic sanctions imposed by the Western community on the Russian economy in March 2014 have had on the pricing of Global Depositary Receipts (GDRs) traded in London. We document that following the first announcement of the imposition of sanctions, the returns of Russian GDRs increased in the case of both the Moscow Exchange and London listings, indicating an enhanced risk of trading with Russian securities. This effect was more pronounced in the case of London listings compared to local listings, which resulted in an overall decrease in the returns spread between the GDR and underlying home market shares. In contrast, we do not find evidence that imposition of sanctions affected turnover by volume of home or London-based GDR trades around the sanctions announcement, suggesting that investors did not pull out of Russian GDRs, but instead, reassessed investment risks associated with Russian securities. Last, our findings provide no evidence of a moderating impact on pricing of Russian GDRs by the two mechanisms that are expected to be indicative of enhanced [decreased] risks for GDRs, namely, state ownership [presence of foreign nationals on boards of directors]. Our study contributes to the debate on the importance of complex assessment of outcomes of international sanctions on individual economies and firms.

Keywords: Asset Pricing, Economic Sanctions, Global Depositary Receipts, London, Moscow Exchange

JEL Classification: G14, G15

Suggested Citation

Kim, Oksana, Investor Reaction to Economic Sanctions: The Case of Russian Global Depositary Receipts (June 19, 2019). Quantitative Finance and Economics, Volume 3, Issue 3, 425–439 (2019), Available at SSRN: https://ssrn.com/abstract=3406370 or http://dx.doi.org/10.2139/ssrn.3406370

Oksana Kim (Contact Author)

Minnesota State University ( email )

Minnesota State University, Mankato
Mankato, MN 56001
United States
5073895411 (Phone)

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