Evolution of Factor Pricing Models and Their Application in the Russian Financial Market

Alexander Abramov (), Maria Chernova () and Talgat Akhmetzyanov ()
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Alexander Abramov: Russian Academy of National Economy and Public Administration (Russia)
Maria Chernova: Russian Academy of National Economy and Public Administration (Russia)
Talgat Akhmetzyanov: Moscow Institute of Physics and Technology (Russia)

Journal of Corporate Finance Research, 2025, vol. 19, issue 2, 67-81

Abstract: The article examines the evolution of asset pricing models in the stock market and explores their practical application in the Russian market. Despite the limited use of the capital asset pricing model and multi-factor models for forecasting stock return, their emergence has played a significant role in elucidating the nature of the equity risk premium and in identifying persistent return anomalies. Factor investment strategies have become the most important application of these models, as they are prevalent in mutual funds in major markets and available to private investors. The article analyzes the potential of factor investment strategies in the Russian stock market and presents an author’s methodology for constructing factor portfolios. Their advantage is evidenced by improved diversification compared to the primary indices of the Moscow Stock Exchange and the ability to hedge through factor strategies across different stages of the business cycle. We conduct the analysis using a large sample of 891 stock issues from 2007 to 2024. Most of the 15 long-factor portfolios categorized by total shareholder return significantly outperform the MOEX-TR index at a moderate risk level. The effects of factor strategies are most pronounced in stocks from the first and second listing tiers; however, these effects are further amplified by including stocks from the third tier. Examination of factor strategies in corporate finance enhances the comprehension of dividend policy’s impact on total shareholder return and market capitalization growth. Increases in dividend yield often slow down the growth of capitalization, creating a dilemma in evaluating the performance of top management. The article justifies the advantage of the total shareholder return as an indicator emphasizing that its growth can be achieved through either an increase in dividend yield or price appreciation, depending on the specifics of the issuer.

Keywords: factor investing; financial market; private investors; fundamental analysis; disclosure; dividend policy (search for similar items in EconPapers)
JEL-codes: G12 G17 G32 (search for similar items in EconPapers)
Date: 2025
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