Financial Crisis in Russia: The Behavior of Non-Residents

Kolodyazhny Georgy () and Medvedev Alexey ()

EERC Working Paper Series from EERC Research Network, Russia and CIS

Abstract: This study focuses on the behavior of non-resident investors during the Russian financial crisis of 1997–1998. Two hypotheses that explain the destabilizing behavior of non-residents were considered and tested. First, non-residents had relatively more attractive alternative investment opportunities than residents, which explains their overreaction to changes in market fundamentals. Second, non-residents imitated the actions of a leader — the largest foreign investor (herding behavior). Results of the empirical testing of the theoretical implications suggest that the first hypothesis does not fully explain all the stylized facts. We found that the actions of the leader had a significant impact on other non-residents’ actions, which supports the herding behavior hypothesis.

Pages: 53 pages
Date: 2001-04-05
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