JP Morgan's recently released 280-page report Big Data and AI Strategies – Machine Learning and Alternative Data Approaches to Investing paints a picture of a future in which alpha is generated from data sources like social media, satellite imagery and machine-classified company filings and news releases. Alpha generation has always been about information advantage: having access either to uncommon insights gained through ingenuity, or common insights acted upon before everyone else. JP Morgan's Contract Intelligence System processes the paperwork for financial deals that previously took tens of thousands of human hours annually. Retiring old systems and moving to integration and data-centricity will require investment and some decent amount of vision, but it will result in future opportunities and cost savings: both from automation and from the ability of such systems to better take advantage of rapidly accelerating advancements in AI, which will require smart data collection, processing and management.
Delegates at Newsweek and International Business Times' data science in capital markets event were mesmerised by a video of shoe box-sized satellites, known as "cube sats" being released into the earth's atmosphere. Professor David Hand, chief scientific advisor, Winton, introducing the event, pointed out that the current AI summer is characterised by what he called "automatic data capture". Tammer Kamel, CEO, Quandl, is a data specialist who understands the transient nature of alpha-generating advantages. Peter Hafez, chief date scientist, RavenPack pointed out that they beat Thomson-Reuters by six months to bring out the first sentiment product.
This type of data is often referred to asalternative data, and with the ever-increasing levels of data available in the modern world comes the opportunity to gain unique insights, competitive industry advantage, and boosted profits. Bloomberg's data services enable investors to easily scan financial data that has been generated by thousands of companies. The CEO of Foursquare, which is a search-and-discovery service mobile app, predicted a30% drop in Q1 salesfor Chipotle, based on footfall data accumulated by their app users. In November of last year, Wall Street was shocked by the news that GoPro had reported a loss of 60 cents per share on $240.56 million in revenue, after analysts had predicted a far less severe loss of 36 cents per share on $314.06 million in revenue.
This type of data is often referred to as alternative data, and with the ever-increasing levels of data available in the modern world comes the opportunity to gain unique insights, competitive industry advantage, and boosted profits. The CEO of Foursquare, which is a search-and-discovery service mobile app, predicted a 30% drop in Q1 sales for Chipotle, based on footfall data accumulated by their app users. These three examples show alternative data being sourced from a social app, email receipts and satellite imagery, highlighting the breadth and variety of potential sources that can be explored.
Banks, hedge funds, and asset managers have become data hoarders. This new trend is primarily driven by the more sophisticated hedge funds and assets managers, since banks are often more restricted by their compliance. Much of the data hoarding actually comes from alternative data sources. News & Social Media – traditional news, microblogs, or unstructured data firehoses to understand what's happening in the world.