12. Big Data Finance and Financial Markets

Financial markets are always the most aggressive adopters of new information technologies. The recent boom in big data has enhanced the effect of information diffusion in financial markets since the physical cost of participation has been reduced and interactions among investors have become more efficient. In this chapter, we provide an overview of the current state of the art related to the utilization of big data in financial markets. To start with, we introduce the concept of financial big data from the perspective of complementing our understanding of the predictability and dynamics of financial markets as well as illustrating the changing landscape from conventional media to big data in academic research. Secondly, we summarize the medium effects of financial big data on the efficient market hypothesis and the market dynamics, respectively. Thirdly, we further probe into the underlying mechanisms as to why financial big data exhibits superior predictability and explanatory power for the market dynamics. Finally, this chapter outlines the challenges and promising avenues for future research.