Equilibrium Data Mining and Data Abundance

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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 22, 2020

Abstract

We analyze how computing power and data abundance affect speculators' search for predictors. In our model, speculators search for predictors through trials and optimally stop searching when they find a predictor with a signal-to-noise ratio larger than an endogenous threshold. Greater computing power raises this threshold, and therefore price informativeness, by reducing search costs. In contrast, data abundance can reduce this threshold because (i) it intensifies competition among speculators and (ii) it increases the average number of trials to find a predictor. In the former (latter) case, price informativeness increases (decreases) with data abundance. We derive implications of these effects for the distribution of asset managers' skills and trading profits.

Keywords: Alternative Data, Data Abundance, Data Mining, Price Informativeness, Search for Information

JEL Classification: G14, D83, D82

Suggested Citation

Dugast, Jérôme and Foucault, Thierry, Equilibrium Data Mining and Data Abundance (October 22, 2020). Available at SSRN: https://ssrn.com/abstract=

Jérôme Dugast

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 (Contact Author)

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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