Working Paper: NBER ID: w26927
Authors: Maryam Farboodi; Adrien Matray; Laura Veldkamp; Venky Venkateswaran
Abstract: As financial technology improves and data becomes more abundant, do market prices reflect this data growth? While recent studies documented rises in the information content of prices, we show that, across asset types, there is data divergence. Large, growth stock prices increasingly reflect information about future firm earnings. This is the rise reflected in the previous studies. But over the same time period, the information content of small and value firm prices was flat or declining. Our structural estimation allows us to disentangle these informational trends from changing asset characteristics. These facts pose a new puzzle: Amidst the explosion of data processing, why has this data informed only the prices of a subset of firms, instead of benefiting the market as a whole? Our structural model offers a potential answer: Large growth firms' data grew in value, as big firms got bigger and growth magnified the effect of these changes in size.
Keywords: financial technology; big data; capital misallocation
JEL Codes: G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| data processing capabilities (C89) | price informativeness for large growth firms (G14) |
| firm size (L25) | marginal value of data (C82) |
| marginal value of data (C82) | price informativeness for large growth firms (G14) |
| price informativeness for large growth firms (G14) | divergence in price informativeness (G19) |
| data processing capabilities (C89) | divergence in price informativeness (G19) |
| firm size (L25) | price informativeness for small firms (G14) |