Does Alternative Data Improve Financial Forecasting? The Horizon Effect

60 Pages Posted: 17 Nov 2020 Last revised: 16 Jun 2022

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

Existing research suggests that alternative data is mainly informative about short-term future outcomes. We show theoretically that the availability of short-term oriented data can induce forecasters to optimally shift their attention from the long-term to the short-term because it reduces the cost of obtaining short-term information. Consequently, the informativeness of their long-term forecasts decreases, even though the informativeness of their short-term forecasts increases. We test and confirm this prediction by considering how the informativeness of equity analysts' forecasts at various horizons varies over the long run and with their exposure to social media data.

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

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