The Early Bird Catches the Worm: How Lasting is the Value of New, Alternative Data?

The authors investigate how the information content of alternative data is impounded in prices and the duration of its value to mutual fund managers. Using a regression discontinuity design, they document that mutual funds increase their loadings on specific stocks by 0.7%-3% in response to exogenous, rounding-induced 1-percentage-point increase in ratings from customer-generated comments about companies’ products and services on social media platforms. This effect is more pronounced when information asymmetry is greater. Funds relying more on such data yield higher abnormal future returns and exhibit better stock-picking and market-timing abilities. This effect dissipates when the data becomes public.