Equilibrium Data Mining and Data Abundance

48 Pages Posted: 27 Jan 2021 Last revised: 5 Jan 2022

See all articles by Jerome Dugast

Jerome Dugast

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

Thierry Foucault

HEC Paris - Finance Department

Date Written: January 4, 2021

Abstract

We propose a new theory of information production in financial markets. In this theory, speculators search for new predictors of asset payoffs and optimally decide to trade on predictors whose signal-to-noise ratio exceeds an endogenous threshold. We use the model to derive predictions regarding the effects of progress in information technologies on quantitative asset managers' performance, the similarity of their holdings, and the informativeness of asset prices. We show that data abundance (an expansion of the search space for predictors due to greater data diversity) and greater data processing power do not have the same effects.

Keywords: [comma Alternative Data; Data Abundance; Data Mining; Price Informativeness; Search for Information]

Suggested Citation

Dugast, Jerome and Foucault, Thierry, Equilibrium Data Mining and Data Abundance (January 4, 2021). HEC Paris Research Paper No. FIN-2020-1393, Université Paris-Dauphine Research Paper No. 3710495, Available at SSRN: https://ssrn.com/abstract=3710495 or http://dx.doi.org/10.2139/ssrn.3710495

Jerome 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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