Results of Data Overload on Monetary Markets: How A lot Is Too A lot?
Alejandro Bernales, Marcela Valenzuela, and Ilknur Zer in this much needed research:
Motivated by cognitive theories verifying that traders have restricted capability to course of data, we examine the consequences of data overload on inventory market dynamics. We assemble an data overload index utilizing textual evaluation instruments on day by day knowledge from The New York Instances since 1885.
We construction our empirical evaluation round a discrete-time studying mannequin, which hyperlinks data overload with asset costs and buying and selling quantity when traders are consideration constrained.
We discover that our index is related to decrease buying and selling quantity and predicts increased market returns for as much as 18 months, even after controlling for normal predictors and different news-based measures. Data overload additionally impacts the cross-section of inventory returns: Buyers require increased threat premia to carry small, excessive beta, excessive risky, and unprofitable shares.
Such findings are in keeping with theories emphasizing that data overload will increase data and estimation threat and deteriorates traders’ choice accuracy amid their restricted consideration.
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