Where Has All the Big Data Gone?

57 Pages Posted: 17 Apr 2018 Last revised: 20 Jul 2018

See all articles by Maryam Farboodi

Maryam Farboodi

Princeton University - Bendheim Center for Finance

Adrien Matray

Princeton University

Laura Veldkamp

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Date Written: April 10, 2018

Abstract

As ever more technology is deployed to process and transmit financial data, this could benefit society, by allowing capital to be allocated more efficiently. Recent work supports this notion. Bai, Philippon and Savov (2016) document an improvement in the ability of S&P 500 equity prices to predict firms' future earnings. We show that most of this "price informativeness" rise can be attributed to a size composition effect as S&P 500 firms are getting larger. In contrast, the average public firm's price information is deteriorating. Do these facts imply that big data failed to price assets more efficiently? To answer this question, we formulate a model of data-processing choices. We find that big data growth, in conjunction with a change in the relative size of firms, can trigger a decline in informativeness for smaller firms. The model also reveals how big data growth can masquerade itself as size composition. The implication is that ever-growing reams of financial data may be helping price assets more accurately. But this might not deliver financial efficiency benefits for the vast majority of firms.

Keywords: big data, information acquisition, efficient financial markets, price informativeness

JEL Classification: G14, E2

Suggested Citation

Farboodi, Maryam and Matray, Adrien and Veldkamp, Laura, Where Has All the Big Data Gone? (April 10, 2018). Available at SSRN: https://ssrn.com/abstract=3164360 or http://dx.doi.org/10.2139/ssrn.3164360

Maryam Farboodi

Princeton University - Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States

Adrien Matray (Contact Author)

Princeton University ( email )

Bendheim Center for Finance
26 Prospect Avenue
Princeton, NJ 08540
United States

Laura Veldkamp

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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