New research suggests that on the days with most significant news regarding Alexei Navalny, the most prominent opposition leader in Russia today, Russian stock market experienced large negative returns that translate into several billion dollars in lost market value.

Alexei Navalny has become the leading political opponent to the current regime in Russia and has entered not only the domestic Russian news flows, but during 2020 has been a major news story around the world. His visibility has been growing as he has endured poisoning, recovery in hospital, and court rulings that have imposed a harsh prison term. At the same time, Navalny and his team have posted new material online to make his case that both the president and other Russian leaders are seriously corrupt.

Torbjörn Becker, Director of the Stockholm Institute of Transition Economics, in his recent policy brief investigates whether the news regarding Navalny affected the Russian stock market. The reasons for such a response may vary between different investors but could include a fear of international sanctions against Russia; an aversion to keeping investments in a country that put a nerve agent in the underwear of a leading opposition leader; or that news of a national security service poisoning one of its own citizens could trigger domestic protests that create instability.

Although it is difficult to prove causality and rule out all competing explanations, the investigation has shown a strong association between major news regarding Navalny and very poor performance of the Russian stock market. Research results indicate that:

  • Every day since August 2020 when Russian stock market had excess returns of minus 2 percent or worse is closely associated with significant news on Navalny;
  • Almost all days with significant Navalny news since August 2020 are associated with a poorly performing Russian stock market;
  • The combined decline of the Russian stock market in all days with significant Navalny news events corresponds to market losses between 28 and 42 billion USD.

The author concludes that even if only a fraction of the stock market losses would be directly associated with news on Navalny, it adds up to very significant sums that some investors have lost. At a minimum, events like these contribute to increased volatility in the market that in turn has a negative effect on capital flows, investments, and ultimately economic growth. For anyone caring about the health of their own investments or the Russian economy, it makes sense to care about the health of Navalny.

Read and download the policy brief by visiting the Stockholm Institute of Transition Economics website (see here).

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Dominick Nilsson
Digital Communication Manager
Stockholm Institute of Transition Economics (SITE)