Analysis of Attention Effect on Russian Stock Market

"Attention" effect is being actively studied in a large number of foreign markets, but at the same time there is virtually no work dedicated to the Russian market. In order to study the nature of the “attention” effect on the Russian market, this paper uses a set of the most relevant and widely applicable proxies for the “attention” effect, including the number of news, tweets and search queries. During the study the authors build an attention index consisting of four proxies using the PCA method. Conducting research based on the attention index (AI) and the frequency of search queries (SVI) makes it possible to detect the presence of the “attention” effect and its positive relationship with the stock returns for large companies whose capitalization exceeds 70 billion rubles. Further, the authors construct arbitrage factors for the “attention” effect, which are then included into the three-factor model. Testing of the proposed models shows a positive result, meaning that this type of model manifests itself better than the traditional three-factor model for the Russian market.