Data Scientists on Wall Street

Financial institutions have significantly increased their recruitment of data scientists in the last two decades. We find that the number of data scientists employed by financial institutions causally affects their ability to earn abnormal profits. Data scientists’ ability to generate abnormal profits on a stock is positively correlated with the concentration of data scientists across all institutional investors holding the stock. Institutional investors strategically adjust portfolio allocation and recruitment decisions to maximize the benefits generated by their data scientists. Consistent with the notion that the competition among data scientists speeds up the production and trade of private information, we also show that the concentration of data scientists covering a stock reduces its price informativeness in the capital market.