Does Big Data Improve Financial Forecasting? The Horizon Effect
60 Pages Posted: 17 Nov 2020 Last revised: 3 Dec 2020
Date Written: December 1, 2020
We study how data abundance affects the informativeness of financial analysts' forecasts at various horizons. Analysts forecast short-term and long-term earnings and choose how much information to process about each horizon to minimize forecasting error, net of information processing costs. When the cost of obtaining short-term information drops (i.e., more data becomes available), analysts change their information processing strategy in a way that renders their short-term forecasts more informative but that possibly reduces the informativeness of their long-term forecasts. We provide empirical support for this prediction using a large sample of forecasts at various horizons and novel measures of analysts' exposure to abundant data. Data abundance can thus impair the quality of long-term financial forecasts.ty of long-term forecasts.
Keywords: Big data, Financial analysts' forecasts, Forecasting horizon, Forecasts' informativeness, Social media
JEL Classification: D84, G14, G17, M41
Suggested Citation: Suggested Citation