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Data abundance and asset price informativeness

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  • Dugast, Jérôme
  • Foucault, Thierry

Abstract

Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. We analyze how this feature affects asset price informativeness when investors can acquire signals of increasing precision over time about the payoff of an asset. As the cost of low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect can ultimately reduce price informativeness because it reduces the demand for more precise signals (e.g., fundamental analysis). We make additional predictions for trade and price patterns.

Suggested Citation

  • Dugast, Jérôme & Foucault, Thierry, 2018. "Data abundance and asset price informativeness," Journal of Financial Economics, Elsevier, vol. 130(2), pages 367-391.
  • Handle: RePEc:eee:jfinec:v:130:y:2018:i:2:p:367-391
    DOI: 10.1016/j.jfineco.2018.07.004
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    Cited by:

    1. Dionne, Georges & Zhou, Xiaozhou, 2019. "Information Environments and High Price Impact Trades: Implication for Volatility and Price Efficiency," Working Papers 19-3, HEC Montreal, Canada Research Chair in Risk Management, revised 04 Nov 2019.
    2. Bastian von Beschwitz & Donald B Keim & Massimo Massa, 2020. "First to “Read” the News: News Analytics and Algorithmic Trading," Review of Asset Pricing Studies, Oxford University Press, vol. 10(1), pages 122-178.
    3. Maryam Farboodi & Adrien Matray & Laura Veldkamp & Venky Venkateswaran, 2020. "Where Has All the Data Gone?," NBER Working Papers 26927, National Bureau of Economic Research, Inc.
    4. Meng Gao & Jiekun Huang & Itay GoldsteinEditor, 2020. "Informing the Market: The Effect of Modern Information Technologies on Information Production," Review of Finance, European Finance Association, vol. 33(4), pages 1367-1411.
    5. Itay Goldstein & Shijie Yang & Luo Zuo, 2020. "The Real Effects of Modern Information Technologies," NBER Working Papers 27529, National Bureau of Economic Research, Inc.
    6. Nawn, Samarpan & Banerjee, Ashok, 2019. "Do the limit orders of proprietary and agency algorithmic traders discover or obscure security prices?," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 109-125.
    7. Foucault, T., 2016. "Where are the risks in high frequency trading?," Financial Stability Review, Banque de France, issue 20, pages 53-67, April.
    8. Kendall, Chad, 2018. "The time cost of information in financial markets," Journal of Economic Theory, Elsevier, vol. 176(C), pages 118-157.
    9. Gider, Jasmin & Schmickler, Simon & Westheide, Christian, 2019. "High-frequency trading and price informativeness," SAFE Working Paper Series 248, Leibniz Institute for Financial Research SAFE.
    10. Donald B. Keim & Massimo Massa & Bastian von Beschwitz, 2018. "First to \"Read\" the News: New Analytics and Algorithmic Trading," International Finance Discussion Papers 1233, Board of Governors of the Federal Reserve System (U.S.).
    11. Corey Garriot & Ryan Riordan, 2020. "Trading on Long-term Information," Staff Working Papers 20-20, Bank of Canada.
    12. Jérôme Dugast & Thierry Foucault, 2020. "Equilibrium Data Mining and Data Abundance," Working Papers hal-03053967, HAL.
    13. Banerjee, Snehal & Breon-Drish, Bradyn, 2020. "Strategic trading and unobservable information acquisition," Journal of Financial Economics, Elsevier, vol. 138(2), pages 458-482.
    14. Declerck, F., 2016. "High-frequency trading, geographical concerns and the curvature of the Earth," Financial Stability Review, Banque de France, issue 20, pages 153-160, April.

    More about this item

    Keywords

    Asset price informativeness; Big data; FinTech; Information processing; Markets for information;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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