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Does Big Data Improve Financial Forecasting? The Horizon Effect

Author

Listed:
  • Olivier Dessaint

    (INSEAD)

  • Thierry Foucault

    (HEC Paris - Finance Department)

  • Laurent Frésard

    (Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute)

Abstract

We study how data abundance affects the informativeness of financial analysts' forecasts at various horizons. Analysts forecast short-term and long-term earnings and choose how much information to process about each horizon to minimize forecasting error, net of information processing costs. When the cost of obtaining short-term information drops (i.e., more data becomes available), analysts change their information processing strategy in a way that renders their short-term forecasts more informative but that possibly reduces the informativeness of their long-term forecasts. We provide empirical support for this prediction using a large sample of forecasts at various horizons and novel measures of analysts' exposure to abundant data. Data abundance can thus impair the quality of long-term financial forecasts.ty of long-term forecasts.

Suggested Citation

  • Olivier Dessaint & Thierry Foucault & Laurent Frésard, 2020. "Does Big Data Improve Financial Forecasting? The Horizon Effect," Swiss Finance Institute Research Paper Series 20-106, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp20106
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    Keywords

    Big data; Financial analysts' forecasts; Forecasting horizon; Forecasts' informativeness; Social media;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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