The stock market at its core is no stranger to creating, processing and acting upon one of the world’s largest sets of real-time data. From single fields of data such as changes in volume for a single listed equity to the entire trading history down to the minute for every stock in the U.S. markets – the sheer amount of data created in the stock markets is tremendous. Since the founding of Instinet in 1969 institutions have been grappling with the challenges and opportunities of analyzing, discovering and acting upon huge electronic quantified datasets.
From large institutional investors to hedge funds there remains tremendous amounts of actionable and insightful data scattered throughout non-quantified sources (think of all the text buried in emails, regulatory filings, news, and more) or hidden in the sense that it has not previously been applied to producing alpha in the capital markets. Discovering these hidden sources of data or integrating proven unstructured data quantification mechanisms, such as sentiment analysis of news or regulatory filings, is to create and profit from data asymmetry. Finding ways to capitalize on this data asymmetry is a powerful differentiator for the global hedge fund markets.
Much of 2016 has seen a turbulent market for hedge funds. And yet there are a subset of hedge funds, computer and data driven quants, benefiting from their capability to integrate powerful data analytics into their entire trading flow. These firms have been “the only hedge fund category to buy additional stock in 2016” per a report from Credit Suisse on Bloomberg. These quantitative hedge funds are delivering alpha through the identification of trends which fundamental analysts may miss.
Alpha, a key capability for any successful firm. A capability which truly thrives through the continued use of traditional data sets only when also combined with insightful and actionable new sets of data. The ongoing application of big data is critical in creating these news sets of data. An organizational approach which searches out and integrates these new sources of data is primed to expand their alpha generating capability.