Only 20 alternative data providers were active in 1990. Still, there are more than 400 active suppliers, an increase of 20 times in the previous 30 years, according to SS&C and the Alternative Investment Management Association.
According to AIMA research and a recent survey by Bank of America, alternate data is currently being consumed by more than better half of all investment firms. New technology will be developed as the pandemic advances. According to the survey, 34 percent of hedge fund managers questioned by AIMA, Simmons & Simmons, and Seward & Kissel said that their organizations were investing in alternative data for the first time.
What is Alternate Data?
Investors use a variety of information while making investment decisions. Data from IOT sensors, credit card transactions, mobile device usage, and social media sentiment, and product assessments are all included in this category. It’s also possible to get information on ESG (environment and corporate governance). These actions are monitored by various other sources, including corporate jet travel, government contracts, and Congressional trade.
Making Alternative Data Useful
After the earthquake, MarketPsy Long-Short Fund began incorporating social media sentiment into its models. On the basis of a 2010 study linking Twitter mood to the Dow Jones, a well-known London hedge fund started trading in the stock market. Alternative data suppliers grew rapidly, as did basic hedge funds. Access to the industry isn’t a guarantee of benefit.
Now, after so many years, https://bitcoinpower.app/ has made its way towards the world’s most trusted online investment platforms.
Raw v/s Aggregated
APIs are often used to aggregate or provide alternative data in a raw data stream format. Aggregated data, a less expensive option, is easier to work with and incorporate into an investment plan since it is organized. They have a lower alpha potential since they are more prevalent.
Several Lululemon stores reported Lu*lulemon instead of Lululemon a few years ago. Since the aggregators didn’t include Lu*lu in their search results, Ekster alerted Built In that sales volumes seemed to be much lower. When Lululemon reported a strong quarter, several investors made ill-advised investments.
Raw data is favored over aggregated data for all of the above reasons. Unaltered data, on the other hand, is only data exhaust. The large clean-up lift would have to be weighed against any potential benefit.
Tackling ticker tagging
API data streams with as much automation as possible are the ideal solution. In order to properly tag and map entities, it’s a pain in the ass. The stock symbol and company name are given a brand alias or corporate reference via the practice of ticker tagging. ‘Verizon,’ for example, should be mapped to both VZ and Verizon Inc. Every reference isn’t as obvious as this one. On the other hand, maybe someone on Twitter uses Verizon’s slogan, “that’s powerful,” in jest. The use of superior artificial intelligence is essential if a hedge fund wants to include human feelings into its investment analysis.
It’s more than just numbers and letters. Some fund managers want their data to be moved to ISINs rather than only CUSIPs. Up to 35 data sets per organization are available via Thinknum. In addition to social media and job posts, there are also data on automotive inventories, retail store growth, hotel site visitors, and vendor-specific product pricing by location, which is available for download.
The Future of Alternative Data
Finance will always need data analysts for structured feeds and benchmark data sets. However, alternative data is used by both quants and fundamental organizations to evaluate current investment hypotheses. That’s why some experts claim that non-aggregated data sets have lower-alpha. Alternate data is no longer seen by organizations as an alpha generator Data sets may also be used to reduce losses in the case of a catastrophe.
Non-financial companies increasingly recognize the value of alternative data. Thinknum offers a web-based user interface for data sets like the API feed. Spiwak says non-financial companies generally utilize it.
Businesses and governments alike need data sets with sufficient historical data and representativeness. In the burgeoning people analytics market thus far. Employee sentiment data is sought for both internal and external purposes. A company’s growth plan may be better understood in real-time employment adverts.
Plus, new data sets appear daily. Examples of ESG (environmental, social, and governance) data are currently hot topics. It assesses a company’s sustainability on three fronts. And investors who have seen evidence indicating sustainable funds beat conventional funds would like it.