CORDIS - EU research results
CORDIS

Financial Information, Data Abundance, and Investment

Project description

When data is too much to handle

Today’s fast growth of volume and variety of data (data abundance) has not been matched by the use of AI technologies to harness this data. The EU-funded FIDAI project will study how this evolution affects the quality and character of information produced in financial markets. For instance, does it impact the signal-to-noise ratio in securities prices and capital allocation? FIDAI will answer this question, among others, based on combined analytical and empirical research. It will create a theory of optimal data mining for the quality of predictors used by investors. It will analyse possible implications for the quality and nature of information on financial markets and their effects on corporate investment.

Objective

"Thierry Foucault ERC ADG 2020

Recent years have witnessed a massive growth in the volume and variety of data (""Data Abundance""). In parallel, thanks to progress in computing power, new techniques (“Artificial Intelligence”) have emerged to harness the information in these data. How does this evolution affect the quality and nature of information produced in financial markets? Is there a risk that it induces investors to trade on noisier signals about economic fundamentals? How does it change the horizon at which information is produced? How does it affect the signal-to-noise ratio in securities prices and capital allocation? This project will break new ground on these unanswered, yet fundamental, questions using a combination of analytical and empirical analyses.

First, I will develop a theory of optimal data mining to disentangle the effect of Data Abundance (DA) from the effect of Artificial Intelligence (AI) on the quality of predictors used by investors. I will then (i) use this theory to make predictions about the effects of AI and DA on the average quality of investors’ predictors, the dispersion of this quality across investors, and the informativeness of securities prices about economic fundamentals and (ii) test some of these predictions.

Second, I will study theoretically and empirically (i) the effects of DA and AI on agents’ allocation of their resources for information production between two tasks: forecasting short-term cash-flows and forecasting long-term cash-flows and (ii) the consequence of these effects for the maturity of corporate investments. In particular, I will focus on whether there is a risk that DA and AI make securities prices more informative about conventional investment projects (whose cash-flows are realized quickly) rather than innovative investment projects (whose cash-flows are realized more slowly), thereby reducing capital available for innovation.



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Host institution

ETABLISSEMENT D'ENSEIGNEMENT SUPERIEUR CONSULAIRE HAUTES ETUDES COMMERCIALES DE PARIS
Net EU contribution
€ 1 098 700,00
Address
RUE DE LA LIBERATION 1
78350 Jouy-En-Josas
France

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Region
Ile-de-France Ile-de-France Yvelines
Activity type
Higher or Secondary Education Establishments
Links
Total cost
€ 1 098 700,00

Beneficiaries (1)