Unlevelling the Playing Field: The Investment Value and Capital Market Consequences of Alternative Data

Abstract

This paper documents the investment value of alternative data and examines how market participants react to the data's dissemination. Using satellite images of parking lots of US retailers, I find a long-short trading strategy based on growth in car count earns an alpha of 1.6% per month. I then show that, after the release of satellite data, hedge fund trades are more sensitive to growth in car count and are more profitable in affected stocks. Conversely, individual investor demand becomes less sensitive to growth in car count and less profitable in affected stocks. Further, the increase in information asymmetry between investors due to the availability of alternative data leads to a decrease in the liquidity of affected firms.

Keywords: Alternative Data, Hedge Funds, Big Data, Information Asymmetry, Retail Investors, Liquidity

JEL Classification: G12, G14, G23