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New research puts a price on the value of financial data | MIT Sloan
February 27, 2022 | Big Data, CIO Corner, Data Analytics
According to the publication, Companies often buy data to make smarter decisions – but only if the value they get from the data is greater than the price they paid for it.
“The past couple of decades have witnessed a huge rise in the use of data in different aspects of the economy, but we don’t know how to value this asset,” said Farboodi, a co-author of the recent paper “Valuing Financial Data.”.
“Right now, some of the largest firms in the U.S. are valued heavily for the data they own, such as consumer data or production data.” That has contributed to “a huge dispersion” between their book value and the stock market value, Farboodi said, explaining that “Accounting rules do not allow book value to include data, unless that data was purchased.”
While all investors like data for its ability to reduce uncertainty, the authors found that when markets are illiquid and there is a lot of price impact, data is valued less because it becomes harder and more expensive to execute profitable trades, and the value of financial data that informs these trades declines.
“Data helps a financial firm execute the profitable trades that others might not know about, but if the markets are illiquid, then it moves the price against the firm, and the firm cannot use the data very effectively,” Farboodi said.
For policymakers, knowing how to properly value financial data is crucial in figuring out how to design policies that will regulate data and help figure out if and how much consumers should be paid for their data.
In the future, Farboodi plans to build on her data research by exploring the value of data that firms produce, based on its importance to society and the economy, versus only valuable to the firm itself.
Source: New research puts a price on the value of financial data | MIT Sloan
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