Does Alternative Data Improve Financial Forecasting? The Horizon Effect

ABSTRACT Existing research suggests that alternative data are mainly informative about short‐term future outcomes. We show theoretically that the availability of short‐term‐oriented data can induce forecasters to optimally shift their attention from the long term to the short term because it reduces...

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Bibliographic Details
Published inThe Journal of finance (New York) Vol. 79; no. 3; pp. 2237 - 2287
Main Authors DESSAINT, OLIVIER, FOUCAULT, THIERRY, FRESARD, LAURENT
Format Journal Article
LanguageEnglish
Published 01.06.2024
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Summary:ABSTRACT Existing research suggests that alternative data are mainly informative about short‐term future outcomes. We show theoretically that the availability of short‐term‐oriented data can induce forecasters to optimally shift their attention from the long term to the short term because it reduces the cost of obtaining short‐term information. Consequently, the informativeness of their long‐term forecasts decreases, even though the informativeness of their short‐term forecasts increases. We test and confirm this prediction by considering how the informativeness of equity analysts' forecasts at various horizons varies over the long run and with their exposure to social media data.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.13323