Importance The article addresses the applicability of modified beta coefficient in the Russian stock market. A modified Capital Asset Pricing Model is a tool enabling to obtain reliable data for investment appraisal. The beta coefficient in the model considers the effect of non-traded risk on the asset. Objectives We aim to identify the modified beta coefficient for domestic companies, compare the modified and traditional beta coefficients, conduct an empirical study to determine the applicability of modified beta coefficient in the Russian stock market. Methods The survey sample includes data on 260 Russian companies listed on the Moscow Exchange for the period from 2010 to 2016. Based on the Amihud illiquidity measure, the companies' shares were divided into 5 quantiles to calculate the model parameters. The shares in the upper quantile served as a benchmark for non-traded assets, and the shares in all other quantiles as a benchmark for traded assets in the market. Results We found that the more imperfect the financial market is, the bigger is the gap between the modified and traditional beta, especially, when the traditional beta value is greater than unity. In addition, the graph of beta coefficients distribution showed that the distribution of modified betas differed noticeably from the distribution of traditional betas which tends to unity. Conclusions The use of traditional beta coefficient is limited in practice, moreover, when creating a portfolio, investors should use a modified beta to obtain more accurate and reliable data, especially for imperfect financial markets.
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