The recent stories of stocks such as AMC Theaters and GameStop unexpectedly skyrocketing in value have given way to a new market understanding: alternative data. As big data becomes more prevalent, alternative data is the next frontier.
The world of investing is changing and as it does, the way that we understand, price, and trade stocks is shifting. Big data’s growth fuels this transformation into new and untapped sources of information in the form of alternative data.
Let’s take a closer look at alternative data and the impact it has on transforming markets.
What Is Alternative Data?
The term “alternative data” pertains to datasets that could plausibly be used as investment inputs but which haven’t been traditionally utilized in that way. Instead, the concept refers to data that can be used as a proxy for tracking tradable assets.
As alternative data becomes more popular, it isn’t surprising that there is a proliferation of new and emerging companies providing these services to investors and financial institutions.
There are dozens of types of alternative data, such as:
News Sentiment: An example of news sentiment data is Twitter. Social media generates huge volumes of information on a minute-by-minute basis, collecting and evaluating businesses for insights into customers’ behavior.
Short Interest Rates: The share price of a stock is influenced by the amount of short-selling in the market.
Third-Party Forecasts: Forecasts can be generated by many market research companies and used to judge the market’s sentiment regarding a stock.
Security Ownership Information: Security ownership information for a stock can include public unreported trades and short interest.
What Is the Impact of Alternative Data?
The current market transformation by big data has created a new method of looking at the market. Not only is big data used to analyze past and current stock trends, but also it can be used to predict future market trends and determine optimal investment strategies.
Obviously, alternative data is a broad subject area that is unraveling as we speak. These new datasets represent a great opportunity for investors to utilize new information that was previously unavailable.