Data Factor and Financial Market Equilibrium

ABSTRACTIn this paper, we develop a novel asset pricing model in which data factor is incorporated into the fundamental value to explore its impact on financial market equilibrium. It is shown that high precision of data can attenuate the fundamental risk and increase the trading intensity, thus enhancing price informativeness and liquidity along with reducing the cost of capital. Furthermore, we discover that there is a positive relationship between real investment efficiency and the correlation coefficient of data factor with productivity. Our results emphasize the important role of data factor in stock pricing and real investment, as well as reveal the internal impact mechanism of data factor on equilibrium properties, which complement the existing empirical evidences and have significant implications on data application.KEYWORDS: Data factorproduction functionequilibrium pricingfundamentalinformation feedbackJEL: D82D84G14G31 AcknowledgmentsThe authors are grateful for the very constructive comments and suggestions from the editor, and two anonymous reviewers.Disclosure StatementNo potential conflict of interest was reported by the author(s).Additional informationFundingThis work was supported by Guangdong Province Philosophy and Social Science Planning Project [GD21YYJ10], Guangdong Basic and Applied Basic Research Foundation [2021A1515110469], National Natural Science Foundation of China [72001013].