54 Pages Posted: 21 Feb 2014 Last revised: 26 Mar 2017
Date Written: March 25, 2017
Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. To capture this feature, we develop a model of securities trading in which investors can acquire signals (about future cash flows) of increasing precision over time. As the cost of producing low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect increases price informativeness in the short run but not necessarily in the long run, because it reduces the profit from trading on more precise signals. We make additional predictions for trade and price patterns.
Keywords: Asset Price Informativeness, Big Data, FinTech, Information Processing, Markets for Information, Contrarian and momentum trading.
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation
Dugast, Jérôme and Foucault, Thierry, Data Abundance and Asset Price Informativeness (March 25, 2017). HEC Paris Research Paper No. FIN-2014-1036; Paris December 2014 Finance Meeting EUROFIDAI - AFFI Paper. Available at SSRN: https://ssrn.com/abstract=2398904 or http://dx.doi.org/10.2139/ssrn.2398904