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Equilibrium Data Mining and Data Abundance

Author

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  • Jérôme Dugast

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)

  • Thierry Foucault

    (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales)

Abstract

We analyze how computing power and data abundance affect speculators' search for predictors. In our model, speculators search for predictors through trials and optimally stop searching when they find a predictor with a signal-to-noise ratio larger than an endogenous threshold. Greater computing power raises this threshold, and therefore price informativeness, by reducing search costs. In contrast, data abundance can reduce this threshold because it intensifies competition among speculators and it increases the average number of trials to find a predictor. In the former (latter) case, price informativeness increases (decreases) with data abundance. We derive implications of these effects for the distribution of asset managers' skills and trading profits.

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  • Jérôme Dugast & Thierry Foucault, 2020. "Equilibrium Data Mining and Data Abundance," Working Papers hal-03053967, HAL.
    • Handle: RePEc:hal:wpaper:hal-03053967
    Note: View the original document on HAL open archive server: https://hal.science/hal-03053967
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    References listed on IDEAS

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    1. Boot, Arnoud & Hoffmann, Peter & Laeven, Luc & Ratnovski, Lev, 2021. "Fintech: what’s old, what’s new?," Journal of Financial Stability, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    Alternative Data; Price Informativeness; Search for Information;
    All these keywords.

    JEL classification:

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

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