As financial technology improves and data becomes more abundant, do market prices reflect this growing information and allocate capital more efficiently? While a number of recent studies have documented rises in aggregate price efficiency, we show that there are large cross-sectional differences. The previously-documented increases are driven by a rise in the informativeness of large, growth stocks. The informational efficiency of smaller assets' prices or prices of assets with less growth potential are either flat or declining. We document these new facts and use a structural model to decompose changes in price informativeness into the effects of changes in information and in growth or volatility characteristics of the assets. Finally, by computing the initial value of data implied by our structural model, we show that these findings could be explained partly by the fact that large firms have grown relatively larger. Since growth magnifies the effect of changes in size, processing data about large-growth firms has becoming more and more valuable, relative to other firms.
Farboodi, Maryam, Adrien Matray, Laura Veldkamp, and Venky Venkateswaran. "Where Has All the Data Gone?" Columbia Business School, September 28, 2019.
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