What is an information coefficient?
Information coefficient is a number used to evaluate the quality of forecasts about the value of shares. It describes the difference between the estimated and actual warehouse yield. Companies use an information coefficient to determine the effectiveness of specific financial analysts; The higher their information coefficients, the better their predictions.
The information coefficient describes the final success of the analyst prediction no matter how they were obtained. The number is obtained by calculating the correlation coefficient between the expected and actual stock prices. Information coefficient 1 suggests that the analyst perfectly predicted stock prices. The coefficient 0 suggests that the analyst was not more effective than your average monkey with a typewriter. A significantly negative information coefficient suggests that the analysts' predictions are the opposite of the right.
Analyst whose predictions have a high information -reference coefficient has a very high value for its employer. If an investment bank has an analyst that can beforeSee changes in stock price with a high level of confidence, it may affect this information to gain great profit. If the Star analyst predicts that the company's shares will double next year, the company can buy a large amount of this stock and sell it when its value increases. The higher the average information coefficient of analytics recommending purchase, the safer the bet is.
It is the task of financial analysts to get information earlier than other people. They study publicly available companies to create their value assessment. The idea is that analysts can use these public data to create high quality predictions that represent better information about the companies they study. Of course, it is also the value of information motivates illegal behavior, such as trading of initiated persons.
When society tries to earn PThe investment, relies on information that puts them in front of competitors. According to the effective market hypothesis - which proved to be somewhat true - all publicly available information is coded in market prices once it is available. For example, if a company releases a new product, the primary impact on the stock price occurs when release information is available. Secondary changes in the price appear only as a result of new information, such as consumer reaction or defect appearance.