Investment Decisions and Falling Cost of Data Analytics

67 Pages Posted: 17 Mar 2018 Last revised: 1 Nov 2018

See all articles by Jussi Keppo

Jussi Keppo

National University of Singapore - NUS Business School

Hong Ming Tan

National University of Singapore (NUS) - NUS Business School

Chao Zhou

National University of Singapore (NUS) - Department of Mathematics

Date Written: October 30, 2018

Abstract

We model a risk-averse decision maker who optimizes the size of an investment, leverage used in the investment, and the level of information on the investment through costly data analytics. We show that borrowing-constrained or highly risk-averse investors have low demand for data analytics. We also show that the demand of data analytics is highest for investment opportunities with high expected returns, and the demand of data analytics is lumpy for opportunities with low expected returns even without analytics fixed cost. Furthermore, the falling marginal cost of data analytics raises investors' leverage, which leads to higher losses during crises.

Keywords: information, analytics, investment, leverage, demand curve

JEL Classification: D81, D83, G11

Suggested Citation

Keppo, Jussi and Tan, Hong Ming and Zhou, Chao, Investment Decisions and Falling Cost of Data Analytics (October 30, 2018). Available at SSRN: https://ssrn.com/abstract=3141043 or http://dx.doi.org/10.2139/ssrn.3141043

Jussi Keppo (Contact Author)

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

Hong Ming Tan

National University of Singapore (NUS) - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

Chao Zhou

National University of Singapore (NUS) - Department of Mathematics ( email )

Department of Mathematics
Singapore, 117543
Singapore

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