Equilibrium Data Mining

We analyze how computing power and data abundance affect speculators' search for predictors. Speculators optimally stop searching when they find a predictor with a signal-to-noise ratio greater than an endogenous threshold. Greater computing power raises this threshold by reducing search costs. In contrast, data abundance can reduce this threshold because (i) it reduces rents from informed trading, except for the best informed speculators and (ii) it increases the average number of trials required to find a predictor. We derive predictions regarding the effects of progress in information technologies on active asset managers' performance, the similarity of their holdings and the informativeness of asset prices.