From Data to Information

The increased accessibility of firm-specific data may speed price discovery and decrease information asymmetry in capital markets through decreased search and discovery costs. Too much data, however, may slow price discovery and increase information asymmetry because of increased friction arising from market participants being distracted or overwhelmed by an overabundance of data. In this I study examine how the amount of publicly available data influences price discovery and information asymmetry. I create a measure of firm data availability. I examine the relation between this measure and investor search for information on the Internet, price formation, and information asymmetry. I find that abnormally high data availability is negatively associated with the speed at which earnings information is impounded into price and positively associated with information asymmetry measures around earnings announcements and that these findings are driven by large firms. I find some evidence that the relation between data availability and price discovery is concave. My findings suggest that an overabundance of publicly available data “muddies the water” and impedes the impounding of information into stock prices.