Does Alternative Data Improve Financial Forecasting? The Horizon Effect

60 Pages Posted: 17 Nov 2020 Last revised: 22 Jul 2021

See all articles by Olivier Dessaint

Olivier Dessaint

INSEAD

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2021

Abstract

We analyze the effect of alternative data on the informativeness of financial forecasts. Our hypothesis is that the emergence of alternative data increases the net benefit of collecting short-term information about firms' cash flows more than the benefit of collecting long-term information. If this hypothesis is correct, and forecasting short-term and long-term cash flows are distinct tasks, alternative data should make short-term forecasts more informative but long-term forecasts less so. We confirm this prediction empirically for sell-side equity analysts' forecasts using a new measure of forecast informativeness at various horizons.

Keywords: Big data, Financial analysts' forecasts, Forecasting horizon, Forecasts' informativeness, Social media

JEL Classification: D84, G14, G17, M41

Suggested Citation

Dessaint, Olivier and Foucault, Thierry and Frésard, Laurent, Does Alternative Data Improve Financial Forecasting? The Horizon Effect (July 20, 2021). HEC Paris Research Paper No. FIN-2020-1402, Swiss Finance Institute Research Paper No. 20-106, Available at SSRN: https://ssrn.com/abstract=3702411 or http://dx.doi.org/10.2139/ssrn.3702411

Olivier Dessaint

INSEAD

Boulevard de Constance
77305 Fontainebleau Cedex
France

Thierry Foucault

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Laurent Frésard (Contact Author)

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
599
Abstract Views
2,101
rank
56,943
PlumX Metrics