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Does Alternative Data Improve Financial Forecasting? The Horizon Effect

Thierry Foucault and Frésard, Laurent

No 15786, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze the effect of alternative data on the informativeness of financial forecasts. Our starting hypothesis is that the emergence of alternative data reduces the cost of obtaining information about firms' short-term cash-flows more than their long-term cash-flows. If correct, and forecasting short-term and long-term cash-flows are distinct tasks, analysts will reduce effort to process long-term information when alternative data become available. Alternative data thus makes long-term forecasts less informative, while increasing the informativeness of short-term forecasts. We confirm this prediction using variations in analysts' exposure to social media data and a new measure of forecast informativeness at various horizons.

Keywords: Alternative data; Security analysts; Forecasting horizon; Forecasts' informativeness; Social media (search for similar items in EconPapers)
JEL-codes: D84 G14 G17 M41 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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