FinTechs and the Market for Financial Analysis

Abstract

Hundreds of equity market intelligence financial technology firms (FinTechs) have formed in the last decade. We assemble novel data to describe their capabilities, users, and consequences. Our data suggest that these FinTechs i) aggregate many data sources, including nontraditional ones (e.g., Twitter, blogs), and synthesize such data using artificial intelligence to make investment recommendations, and ii) change Internet users’ information discovery by serving as substitutes for traditional information providers. We evaluate some nontraditional data and find evidence suggesting that such data contain valuable information or “crowd wisdom” that links to informational efficiency. Overall, our findings are consistent with this innovation benefiting investors and markets.

The Speed of Information and the Sell-Side Research Industry

“…Nonetheless, the result survives a number of matching controls that suggests leaked recommendations on FLY facilitate price discovery. These results are consistent with the empirical findings in Zhu (2019) and Grennan and Michaely (2018) that FinTech companies improve price informativeness by decreasing the costs of information acquisition.…”

“…While leaked recommendations facilitate price discovery, rapid price discovery makes it harder for brokerage clients to take advantage of the gains created by their recommendations. These results are consistent with the theoretical models of Grossman and Stiglitz (1980), Diamond and Verrecchia (1981), and Verrecchia (1982) and contribute to an emerging literature on the proliferation of big data in capital markets and how financial technology impacts firms' information environment (Grennan and Michaely (2018), Dugast and Foucault (2018), Farboodi, Matray, and Veldkamp (2018), and Zhu (2019)). Our empirical results tie in to model, which suggests that financial technology boosts information processing efficiency but simultaneously reduces incentives to produce information pertaining to fundamentals.…”

“…An emerging literature focuses on how financial technology and speed have impacted price discovery from order flow (Brogaard, Hendershott, and Riordan (2014), Bai, Philippon, and Savov (2016), and Foucault, Hombert, and Rosu (2016)). For instance, investors are willing to pay considerable sums for real-time access to consumer sales data and/or satellite imagery of retail firms' parking lots (Froot, Kang, Ozik, and Sadka (2017), Zhu (2019)) or crowdsourced investment platforms (Jame, Johnston, Markov, and Wolfe (2016), Grennan and Michaely (2018)).…”

Statistical and bibliometric analysis of financial innovation

“…Third, at the intention level, we observe financial news concerning fintech to predict the intention of banks to adopt financial innovation services. The contents of financial media data have also been used in studies to investigate market performance (Grennan and Michaely, 2018;Chen and Chen, 2018).…”

The Sharing-Exchange Continuum Inside of the Sharing Economy

“…Although earlier academic work has focused more on traditional sectors such as manufacturing (Hall & Oriani, 2006), current research emphasizes more on the technology sector (Grennan & Michaely, 2017;Bannigidadmath & Narayan, 2016).…”