Skill Acquisition and Data Sales
65 Pages Posted: 16 Nov 2016 Last revised: 29 Apr 2021
Date Written: April 29, 1
We develop a data-sales model to study the implications of alternative data for financial markets. Investors acquire skills to process the purchased raw data, and developing such skills is costly and involves considerable uncertainty. The data vendor controls the size of the data sample to influence how precise information investors can extract from the purchased data. Price informativeness is hump-shaped in skill-acquisition costs, while the cost of capital and return volatility are U-shaped in skill-acquisition costs. Similar patterns can arise for skill mean and skill volatility. Our analysis suggests that the funds industry and the data industry foster each other.
Keywords: Data sales, skill acquisition, alternative data, asset prices
JEL Classification: D82, G12, G14
Suggested Citation: Suggested Citation