Currency risk and the dynamics of German investors entry and exit in Russia
Using a complete manually collected set of 3435 Russian firms with German capital in 2003–2020, we examine the effect of currency risk on the dynamics of German investors’ entry and exit into the Russian market via foreign direct investment. We document that German investors were relatively tolerant towards currency risk before 2014, and became highly sensitive post 2014. We conclude that, along with geopolitical factors, the free floating exchange rate
regime adopted by the Central Bank of Russia in 2014 affected the incentives of German investors.
We discuss various mechanisms to explain these findings.