Cost of Borrowing as an Indicator of Region-Specific Investment Risk: The Case of Russia

Abstract

The paper deals with the problem of risk in the emerging markets. We study the fixed-income securities issued by the subjects of the Russian Federation in order to analyse: 1. the attractiveness of various market sources for borrowing, 2. the demanded return on the investment as a measure of the regional risk. The value of the borrowings on the stock market was lower than the alternative sources. The crisis of 1998 collapsed the inner securities market, and almost all administrations stopped to fulfill their obligations. Never-the-less new interest to the Russian securities appears again. The potential of regional bonds in Russia is rather high, and it could develop quite rapidly.