Data Abundance and Asset Price Informativeness

54 Pages Posted: 17 Oct 2014 Last revised: 26 Mar 2017

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2017

Abstract

Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. To capture this feature, we develop a model of securities trading in which investors can acquire signals (about future cash flows) of increasing precision over time. As the cost of producing low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect increases price informativeness in the short run but not necessarily in the long run, because it reduces the profit from trading on more precise signals. We make additional predictions for trade and price patterns.

Keywords: Asset Price Informativeness, Big Data, FinTech, Information Processing, Markets for Information, Contrarian and momentum trading

JEL Classification: G10, G12, G14

Suggested Citation

Dugast, Jerome and Foucault, Thierry, Data Abundance and Asset Price Informativeness (March 25, 2017). Available at SSRN: https://ssrn.com/abstract=2510835 or http://dx.doi.org/10.2139/ssrn.2510835

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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