On Short Term Price Trends in Russia's Stock Market

by: Michael Stokes

This is the fourth contribution to the MarketSci Blog from Andrey S. of Russia (along with the trading nuggets here, here, and here).

In this post, Andrey shows that, like India, day-to-day changes in the Russian stock market behave opposite of the US: they are momentum, not contrarian driven. This has huge consequences for all short-term indicators, such as blogosphere fav RSI(2).

A simple illustration…


The graph above shows the results of two trading strategies: one going long Russia’s RTS Index at today’s (theoretical) close if the market closed up today (green) and the other if it closed down (red), from 1996.

Geek note: this is a proof of concept, so these results are frictionless (i.e. do not account for transaction fees or slippage). Also, I’ve used the version of the index denominated in U.S. Dollars (more on this in a bit).

Obviously, the Russian market demonstrates tremendous daily follow-through; up days tend to be followed by up days, and vice-versa. But recall that this is the exact opposite of what we see in the U.S. today (read more here and here) where short-term movement is very much contrarian; up days tend to be followed by down days, and vice-versa.

A different view…


The graph above shows the same data in a single “portfolio”, assuming we traded long following a close up, but short following a close down (frictionless).

There are two oddities about the results above: (1) the bend in the equity curve where I’ve placed the red arrow, and (2), very different results over the last year or so when viewing the index denominated in Rubles (rather than USD). More on both of these oddities in part 2 of this post.

Happy Trading.