The hunt for alpha is never-ending with one of the new battlegrounds being the acquisition and development of alternative data. Don't think of the development of new strategies, think of new information. A recent survey by Lowenstein Sandler, "Alternative Data = Better Investment Strategies, But Not Without Concerns" outlines the strong pivot to alternative data.
82% of hedge funds surveyed are using alternative data and 42% of funds say their usage is extensive. Most firms are expecting to increase their research budgets to alternative data with close to 75 percent expecting to increase budgets by at least 11 percent.
Their use of this data is wide ranging. Bigger firms are gathering this information in-house and not just buying from vendors. While alternative data is used to enhance existing research, larger firms are using new information to develop new trading strategies based on their new data.
82% of hedge funds surveyed are using alternative data and 42% of funds say their usage is extensive. Most firms are expecting to increase their research budgets to alternative data with close to 75 percent expecting to increase budgets by at least 11 percent.
Their use of this data is wide ranging. Bigger firms are gathering this information in-house and not just buying from vendors. While alternative data is used to enhance existing research, larger firms are using new information to develop new trading strategies based on their new data.
There are a few methods for generating alpha from research. All involve improving return predictions. Managers could gain alpha through better manipulation of existing data. The race to use machine learning could be considered the frontier for data manipulation. The other method for gaining an edge is through new sources of information that is unavailable to others. Since statistical techniques are in the public domain, alternative data can be viewed as a more effective way of creating a barrier to entry and unique advantage.
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