Alternative data (in

finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

) refers to

data In the pursuit of knowledge, data (; ) is a collection of discrete values that convey information, describing quantity, quality, fact, statistics, other basic units of meaning, or simply sequences of symbols that may be further interpreted ...

used to obtain insight into the

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

process. These

data set A data set (or dataset) is a collection of data. In the case of tabular data, a data set corresponds to one or more database tables, where every column of a table represents a particular variable, and each row corresponds to a given record of the ...

s are often used by

hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...

managers and other institutional investment professionals within an

investment company An investment company is a financial institution principally engaged in holding, managing and investing securities. These companies in the United States are regulated by the U.S. Securities and Exchange Commission and must be registered under the ...

. Alternative data sets are information about a particular company that is published by sources outside of the company, which can provide unique and timely insights into

opportunities. Alternative

s are often categorized as

big data Though used sometimes loosely partly because of a lack of formal definition, the interpretation that seems to best describe Big data is the one associated with large body of information that we could not comprehend when used only in smaller am ...

, which means that they may be very large and complex and often cannot be handled by

software Software is a set of computer programs and associated documentation and data. This is in contrast to hardware, from which the system is built and which actually performs the work. At the lowest programming level, executable code consists ...

traditionally used for storing or handling data, such as

Microsoft Excel Microsoft Excel is a spreadsheet developed by Microsoft for Microsoft Windows, Windows, macOS, Android (operating system), Android and iOS. It features calculation or computation capabilities, graphing tools, pivot tables, and a macro (comp ...

. An alternative data set can be compiled from various sources such as

financial transaction A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A ...

sensors A sensor is a device that produces an output signal for the purpose of sensing a physical phenomenon. In the broadest definition, a sensor is a device, module, machine, or subsystem that detects events or changes in its environment and sends ...

mobile devices A mobile device (or handheld computer) is a computer small enough to hold and operate in the hand. Mobile devices typically have a flat LCD or OLED screen, a touchscreen interface, and digital or physical buttons. They may also have a physical ...

, satellites,

public records Public records are documents or pieces of information that are not considered confidential and generally pertain to the conduct of government. For example, in California, when a couple fills out a marriage license application, they have the optio ...

, and the

internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...

. Alternative data can be compared with data that is traditionally used by

investment companies An investment company is a financial institution principally engaged in holding, managing and investing securities. These companies in the United States are regulated by the U.S. Securities and Exchange Commission and must be registered under the ...

such as investor presentations,

SEC filings The SEC filing is a financial statement or other formal document submitted to the U.S. Securities and Exchange Commission (SEC). Public companies, certain insiders, and broker-dealers are required to make regular SEC filings. Investors and fin ...

, and

press release A press release is an official statement delivered to members of the news media for the purpose of providing information, creating an official statement, or making an announcement directed for public release. Press releases are also considere ...

s. These examples of "traditional data" are produced directly by the company itself. Since alternative data sets originate as a product of a company's operations, these data sets are often less readily accessible and less structured than traditional sources of data. Alternative

is also known as " data exhaust". The company that produces alternative data generally overlooks the value of the data to

institutional investor An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked co ...

s. During the last decade, many data

broker A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...

s, aggregators, and other intermediaries began specializing in providing alternative data to

investor An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...

s and analysts.

Types

Examples of alternative data include: * Geolocation (foot traffic) * Credit card transactions * Email receipts * Point-of-sale transactions * Web site usage * Mobile App or App Store analytics *

Crowdsourcing Crowdsourcing involves a large group of dispersed participants contributing or producing goods or services—including ideas, votes, micro-tasks, and finances—for payment or as volunteers. Contemporary crowdsourcing often involves digita ...

* Obscure city hall records *

Satellite image Satellite images (also Earth observation imagery, spaceborne photography, or simply satellite photo) are images of Earth collected by imaging satellites operated by governments and businesses around the world. Satellite imaging companies sell ima ...

s *

Social media Social media are interactive media technologies that facilitate the creation and sharing of information, ideas, interests, and other forms of expression through virtual communities and networks. While challenges to the definition of ''social medi ...

posts *

Online In computer technology and telecommunications, online indicates a state of connectivity and offline indicates a disconnected state. In modern terminology, this usually refers to an Internet connection, but (especially when expressed "on line" or ...

browsing Browsing is a kind of orienting strategy. It is supposed to identify something of relevance for the browsing organism. When used about human beings it is a metaphor taken from the animal kingdom. It is used, for example, about people browsing o ...

activity * Shipping container receipts * Product

review A review is an evaluation of a publication, product, service, or company or a critical take on current affairs in literature, politics or culture. In addition to a critical evaluation, the review's author may assign the work a content rating, ...

s * Price trackers * Shipping trackers * Internet activity and quality data S&P 500 versus sentiment

Uses

Alternative data is being used by fundamental and quantitative

s to create innovative sources of

alpha Alpha (uppercase , lowercase ; grc, ἄλφα, ''álpha'', or ell, άλφα, álfa) is the first letter of the Greek alphabet. In the system of Greek numerals, it has a value of one. Alpha is derived from the Phoenician letter aleph , whic ...

. The field is still in the early phases of development, yet depending on the resources and risk tolerance of a

fund Fund may refer to: * Funding is the act of providing resources, usually in form of money, or other values such as effort or time, for a project, a person, a business, or any other private or public institution ** The process of soliciting and gathe ...

, multiple approaches abound to participate in this new paradigm. The process to extract benefits from alternative data can be extremely challenging. The

analytics Analytics is the systematic computational analysis of data or statistics. It is used for the discovery, interpretation, and communication of meaningful patterns in data. It also entails applying data patterns toward effective decision-making. It ...

systems A system is a group of interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundaries, structure and purpose and express ...

, and technologies for processing such data are relatively new and most

s do not have capabilities to integrate alternative data into their

decision process. However, with the right tools and strategy, a fund can mitigate costs while creating an enduring competitive advantage. Most alternative data research projects are lengthy and resource intensive; therefore, due-diligence is required before working with a data set. The due-diligence should include an approval from the compliance team, validation of processes that create and deliver this data set, and identification of investment insights that can be additive to the investment process. However, the usage of the alternative data is not restricted by investment sphere, it’s successfully used in economics and politics as well as retail and e-commerce spheres. It's possible to predict

geopolitical risk Geopolitics (from Greek γῆ ''gê'' "earth, land" and πολιτική ''politikḗ'' "politics") is the study of the effects of Earth's geography (human and physical) on politics and international relations. While geopolitics usually refers to ...

through a profound alternative data analysis, while social media sites reveal a host of data for consumer sentiment analysis.

Methodology

Alternative data can be accessed via: *

Web scraping Web scraping, web harvesting, or web data extraction is data scraping used for extracting data from websites. Web scraping software may directly access the World Wide Web using the Hypertext Transfer Protocol or a web browser. While web scraping ...

(or web Harvesting, performed by

computer programmer A computer programmer, sometimes referred to as a software developer, a software engineer, a programmer or a coder, is a person who creates computer programs — often for larger computer software. A programmer is someone who writes/creates ...

s that design an

algorithm In mathematics and computer science, an algorithm () is a finite sequence of rigorous instructions, typically used to solve a class of specific Computational problem, problems or to perform a computation. Algorithms are used as specificat ...

that searches websites for specific data on a desired topic) * Acquisition of

Raw data Raw data, also known as primary data, are ''data'' (e.g., numbers, instrument readings, figures, etc.) collected from a source. In the context of examinations, the raw data might be described as a raw score (after test scores). If a scientist ...

* Third-party

Licensing A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit). A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...

Analysis

, Alternative data is often analysed in the following ways: *

Scarcity In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...

: the data

Information overload Information overload (also known as infobesity, infoxication, information anxiety, and information explosion) is the difficulty in understanding an issue and effectively making decisions when one has too much information (TMI) about that issue, ...

within

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...

s *

Granularity Granularity (also called graininess), the condition of existing in granules or grains, refers to the extent to which a material or system is composed of distinguishable pieces. It can either refer to the extent to which a larger entity is subd ...

: the level of detail and aggregation of data (including time) * History: the trajectory of data *

Structure A structure is an arrangement and organization of interrelated elements in a material object or system, or the object or system so organized. Material structures include man-made objects such as buildings and machines and natural objects such as ...

: the form of the data ( csv, json etc.) * Coverage: the stocks or geographical locations that data can be linked with

Best practices

While compliance and internal regulation are widely practiced in the alternative

field, there exists a need for an industry-wide

best practices A best practice is a method or technique that has been generally accepted as superior to other known alternatives because it often produces results that are superior to those achieved by other means or because it has become a standard way of doing ...

standard. Such a standard should address

personally identifiable information Personal data, also known as personal information or personally identifiable information (PII), is any information related to an identifiable person. The abbreviation PII is widely accepted in the United States, but the phrase it abbreviates ha ...

(PII) obfuscation and access scheme requirements among other issues. Compliance professionals and decision makers can benefit from proactively creating internal

guidelines A guideline is a statement by which to determine a course of action. A guideline aims to streamline particular processes according to a set routine or sound practice. Guidelines may be issued by and used by any organization (governmental or pri ...

for data operations. Publications such as NIST 800-122 provide guidelines for protecting PII and are useful when developing internal best practices. Investment Data Standards Organization (IDSO) was established to develop, maintain, and promote industry-wide standards and best practices for the Alternative Data industry.

Web Scraping

Legal aspects surrounding

web scraping Web scraping, web harvesting, or web data extraction is data scraping used for extracting data from websites. Web scraping software may directly access the World Wide Web using the Hypertext Transfer Protocol or a web browser. While web scraping ...

of alternative data have yet to be defined. Current best practices address the following issues when determining legal compliance of

web crawling A Web crawler, sometimes called a spider or spiderbot and often shortened to crawler, is an Internet bot that systematically browses the World Wide Web and that is typically operated by search engines for the purpose of Web indexing (''web spid ...

operations: * Review of the terms and conditions associated with the websites crawled * Control over the potential interference with crawled websites Web scraped data refers to data harvested from public websites. With 4 billion webpages and 1.2 million terabytes of data on the internet, there is a mountain of information that can be valuable to investors when analyzing a corporate performance. The companies that specialize in this type of data collection, like Thinknum Alternative Data, write programs that access targeted websites and collect and store the scraped information on a periodic basis. In some cases web scraping requires use of public APIs as a way to access the data within those pages directly without visiting the actual website. Types of web scraped data include: * Job listings: A company that is increasing hiring and headcount is likely experiencing growth. * Company ratings: Sites like Glassdoor allows employees to rate their company; increasing ratings, especially (in conjunction with increasing job listings) can be another growth indicator. * Online retail data: High product rankings on online retailers suggest strong sales for those product manufacturers. On the flip side, heavy discounting of products suggest weak sales. Standards Board for Alternative Investment (SBAI) is the global standard-setting agency for the alternative investment industry and guardian of the Alternative Investment Standards. The agency supported by approximately 200 alternative investment managers and institutional investors and collectively manage $3.5 trillion. The

SBAI ''Sbai'' ( km, ស្បៃ ; lo, ສະໄບ; Malay: ''Sebai''; Jawi: ''سباي''; th, สไบ, ) or ''phaa biang'' ( lo, ຜ້າບ່ຽງ; th, ผ้าเบี่ยง ) is a shawl-like garment or breast cloth worn in mainlan ...

has published the Standardised Trial Data License Agreement which addresses investment managers’ issues when comes to new data trailing process, like alternative data and

. Thomas Deinet, Executive Director of the SBAI said: "This Trial Data Licence Agreement template highlights a number of very important issues, including personal data protection, which has become a hot topic in light of the overhaul of data protection regulation in many jurisdictions. It also includes key protections for managers in areas such as prevention of insider trading and ‘right to use data’. It is crucial that managers and data vendors fully understand all risks when selling and using new data."publishes Standardised Trial Data License Agreement."6 February 2019. Retrieved 15 May 2019.
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References

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