Laura Veldkamp, Professor of Finance, Columbia University’s Graduate School of Business
As financial technology improves and data becomes more abundant, do market prices reflect this data growth? While recent studies documented rises in the information content of prices, we show that, across asset types, there is data divergence. Large, growth stock prices increasingly reflect information about future firm earnings. This is the rise reflected in the previous studies. But over the same time period, the information content of small and value firm prices was flat or declining. Our structural estimation allows us to disentangle these informational trends from changing asset characteristics. These facts pose a new puzzle: Amidst the explosion of data processing, why has this data informed only the prices of a subset of firms, instead of benefiting the market as a whole? Our structural model offers a potential answer: Large growth firms’ data grew in value, as big firms got bigger and growth magnified the effect of these changes in size.
Laura Veldkamp is a Professor of Finance at Columbia University’s Graduate School of Business and a co-editor of the Journal of Economic Theory. Professor Veldkamp earned a BA in applied mathematics and economics from Northwestern University, and a PhD in economic analysis and policy from Stanford Graduate School of Business. Prior to joining Columbia, she taught at NYU for 15 years. She is a faculty research fellow for the National Bureau of Economic Research and the Centre for Economic and Policy Research, and a frequent consultant for the New York and Minneapolis Federal Reserve Banks. She is also the author of the textbook, Information Choice in Macroeconomics and Finance (Princeton University Press).
Professor Veldkamp’s research focuses on how individuals, investors and firms get their information, how that information affects the decisions they make, and how those decisions affect the macroeconomy and asset prices. Her recent work examines how people form beliefs about tail risk and how learning about tails, or disasters, can explain persistent low interest rates, volatile equity prices and secular stagnation.