Equilibrium Data Mining and Data Abundance

49 Pages Posted: 15 Oct 2020 Last revised: 23 Oct 2020

See all articles by Jérôme Dugast

Jérôme Dugast

Université Paris-Dauphine, PSL Research University; Université Paris Dauphine - Department of Finance

Thierry Foucault

HEC Paris - Finance Department

Date Written: October 13, 2020

Abstract

We analyze how information processing power and data abundance affect speculators' search for predictors. Speculators optimally search for a predictor whose signal-to-noise ratio exceeds an endogenous threshold. Greater computing power raises this threshold, and therefore price informativeness, because it reduces the cost of search. In contrast, data abundance can lower this threshold because (i) it intensifies competition among speculators, which reduces the benefit of finding a good predictor and (ii) it increases the total expected cost of finding a predictor. In the former (latter) case, price informativeness increases (decreases) with data abundance. We present additional testable implications of these effects.

Suggested Citation

Dugast, Jérôme and Foucault, Thierry, Equilibrium Data Mining and Data Abundance (October 13, 2020). Available at SSRN: https://ssrn.com/abstract=3710495 or http://dx.doi.org/10.2139/ssrn.3710495

Jérôme Dugast (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Université Paris Dauphine - Department of Finance ( email )

Place du Maréchal de Lattre de Tassigny
Paris Cedex 16, 75775
France
+33 1 44 05 40 41 (Phone)

HOME PAGE: http://https://sites.google.com/view/jeromedugast/home

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/

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