WASHINGTON -- It was a Saturday when Russia’s upper house of parliament authorized President Vladimir Putin to dispatch troops to Ukraine.
When trading opened two days later on March 3, 2014, the Russian stock market plunged more than 10 percent.
Russia’s sharp shift toward military confrontation, which paved the way for its annexation of Ukraine’s Crimea territory, appeared to have caught many investors off guard.
But suspicious trading prior to Putin's green light for intervention suggests insiders knew something was afoot, according to research by two U.S.-based doctoral students.
“I cannot say that there was insider trading for sure on the Russian stock market before, but something really, really suspicious was going on,” Yekaterina Volkova, a doctoral student specializing in finance at Cornell University in New York, told RFE/RL.
In a working paper, Volkova and co-author Felipe Silva investigate how "informed traders" acting on information not known to the public may have dumped their Russian stocks before the market tumbled over fears of a military conflict between Russia and Ukraine.
Using an algorithm known as Volume-Synchronized Probability of Informed Trading (VPIN), which measures "volume imbalance and trade intensity" to determine the portion of “informed traders” on the market for a specific security. What they concluded was that the suspicious trading spiked two trading days prior to the market plunge.
"Evidently there were people on the market trading on...political news before it became widely known," Volkova wrote in a February 24 op-ed for the respected Russian business daily Vedomosti.
The VPIN algorithm was developed by two respected U.S. economists and a quantitative research expert who demonstrated how spikes in the metric can foreshadow market crashes, including the 2010 "flash crash" on U.S. stock markets.
In a column about the research by Volkova and Silva, Russian political commentator Leonid Bershidsky suggested the metric could be employed to help gauge Putin’s future actions in the Ukraine crisis "if combined with some basic knowledge of regional news."
"If it increases during a round of peace talks, for example, it could mean Russia is serious about making an eastern Ukraine cease-fire stick," the Berlin-based Bershidsky wrote this week for Bloomberg View.
'Unusually High Activity'
Volkova and Silva calculated the VPIN for Russia’s dollar-denominated RTS index, based on the prices of the 50 most liquid Russian stocks, from January 14, 2014, until March 15, 2014. During that period, the metric jumped to suspiciously high levels on February 27 and February 28, the last two trading days before the crash.
Tensions between Russia and Ukraine were undoubtedly high during those two days. Putin that week had called for snap military drills in western Russia, and armed men -- who were later revealed to be Russian soldiers -- seized government buildings in Crimea.
But if large swaths of investors were expecting a Russian takeover of the Ukrainian peninsula, the markets didn’t show it, Volkova says.
"There were no severe drops on the stock market...before March 1," when lawmakers granted Putin’s request to authorize sending Russian troops to Ukraine, she told RFE/RL.
The data during this two-day period, however, does show "unusually high activity of informed traders who would profit [or avoid losses]" from the Crimean crisis, Volkova and Silva write.
Volkova, a 25-year-old Moscow native, is quick to note that the research does not definitively assert that criminal insider trading was taking place on the Russian stock market prior to Russia's push to take over Crimea. The "informed" investors who profited, according to the data, may have simply acted on better data.
It is also unclear exactly who these prescient investors were. "Not all insiders or people who have information have to report their sales," Volkova told RFE/RL.
There was, however, at least one prominent Russian insider who was required by law to disclose a timely stock sale in the run-up to the Crimea crisis: Viktor Zubkov, chairman of Russia's state-owned energy giant Gazprom.
Zubkov sold his entire stake in the company for 34.5 million rubles on February 11, 2014, a profit of some 4.5 million rubles, or around $129,000 at the time.
When the Russian market plummeted weeks later after Putin secured approval to send troops to Ukraine, Gazprom's stock price fell nearly 14 percent.