Everything is grist for the AI-powered analytical mill that processes the sentiment of corporate Twitter feeds, the CEO’s choice of executive car, turnover in accounting firms, company mentions in the daily paper, and a million other data points as asset managers and hedge fund traders seek the tiniest edge over the market.
Justina Lee filed this report on alternative data for Bloomberg:
Statistical-arbitrage shops and macro funds have spent millions for exclusive data to uncover sources of consistent returns. Stock pickers famously count cars parked outside Walmart or track oil tankers to inform trades.
But peers in the traditional world of factors typically watched from the sidelines. The allocation styles, which slice up indexes to exploit behavioral anomalies like momentum and low volatility, were nothing if not time-tested. Why mess with success?
Now, newfangled inputs are everywhere as traders upgrade misfiring models. Everything from an executive’s tone and corporate culture to social media are sliced and diced for algorithmic intel in this corner of the systematic world.
At O’Shaughnessy Asset Management in Connecticut, quants are poised to incorporate patent data into their value portfolio to track intangible assets powering the knowledge economy. Over at BNP Paribas Asset Management, a team is investigating whether market sentiment derived from news stories can help define momentum strategies, or even serve as a standalone indicator.
Neuberger Berman Breton Hill, for one, is using credit-card data — an established favorite among discretionary hedge funds — to help estimate sales across consumer industries in real time.
“If you’re exactly following the way academics defined factors 30 years ago, then you’re using really old technology and I would just say no one would want to use an Apple IIe to manage their spreadsheets anymore,” said Ray Carroll, chief investment officer of the Toronto-based firm. “There’s just way more data available. If you don’t take advantage of all those things, I can guarantee you your competitors will.”
