Data Specialists and Market Efficiency

Massimo Massa, Hong Zhang and Yijun Zhou

No 19390, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In the age of big data, investors need to process increasingly complicated, multidimensional data to decipher different aspects of a firm. How do investors deal with such multidimensional data? We find more informed institutional investors tend to specialize in subsets of firm aspects (i.e., data specialists). Such data specialization, however, may hamper market efficiency. Inattention shocks to specialists hinder price efficiency in their specialized aspects of firms; other aspects of firms may also be negatively influenced due to strategic complementarity. Specialist inattention also significantly impacts anomaly returns, impeding the price corrective effect of news arrival. Our results have important implications for how data affects market efficiency.

JEL-codes: G14 G23 (search for similar items in EconPapers)
Date: 2024-08
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