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Does Big Data Improve Financial Forecasting? The Horizon Effect

Author

Listed:
  • Dessaint, Olivier

    (INSEAD)

  • Foucault, Thierry

    (HEC Paris)

  • Frésard, Laurent

    (Universita della Svizzera italiana (USI Lugano))

Abstract

Existing research suggests that alternative data is mainly informative about short-term future outcomes. We show theoretically that the availability of short-term oriented data can induce forecasters to optimally shift their attention from the long-term to the short-term because it reduces the cost of obtaining short-term information. Consequently, the informativeness of their long-term forecasts decreases, even though the informativeness of their short-term forecasts increases. We test and confirm this prediction by considering how the informativeness of equity analysts' forecasts at various horizons varies over the long run and with their exposure to social media data.

Suggested Citation

  • Dessaint, Olivier & Foucault, Thierry & Frésard, Laurent, 2020. "Does Big Data Improve Financial Forecasting? The Horizon Effect," HEC Research Papers Series 1402, HEC Paris.
    • Handle: RePEc:ebg:heccah:1402
    DOI: 10.2139/ssrn.3702411
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    Keywords

    Big data; Financial analysts forecasts; Forecasting horizon; Forecasts informativeness; Social media;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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