HEC Research Papers Series,
HEC Paris

Abstract: Big data allows active asset managers to find new trading signals but doing so requires new skills. Thus, it can reduce the ability of asset managers lacking these skills to produce superior returns. Consistent with this hypothesis, we find that the release of satellite imagery data tracking firms’ parking lots reduces active mutual funds’ stock picking abilities in stocks covered by this data. This decline is stronger for funds that are more likely to rely on traditional sources of expertise (e.g., specialized industry knowledge) to generate their signals, leading them to divest from covered stocks. These results suggest that big data has the potential to displace high-skill workers in finance.

Keywords: Big data; active mutual funds; stock-picking skill; quantitative investment

JEL-codes: G11; G14; G23

93 pages, August 2, 2023

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