This is a guest post by Alessandro Ferrari, who is head of global marketing outreach at RIMES
Big Data management could potentially have a significant impact on the staff resources that are harnessed at investment managers and other financial services industry participants by making it easier for algorithms to perform the tasks that can traditionally be done by analysts.
The looming situation was brought up by several individuals at an industry gathering that was held in Los Angeles in May, according to Institutional Investor. Louis Salkind, who has served as the managing director of hedge fund firm D.E. Shaw & Co. for some time, noted the significant impact that could be created when financial services firms start harnessing the vast amounts of information that is out there.
How Big Data can change trading
For example, he told the tale of a broker who predicted the quarterly financial figures for major retailer WalMart by harnessing data culled from satellite imagery, the media outlet reported.
“Imagine what happens when they start using big data techniques to look at fundamental data,” he stated at the event, according to the news source. “When people start integrating these forms of data, it’s just going to be a different world out there.”
Market shift already underway, says expert
Such changes are already underway in the world of finance, Nicholas Colas, chief market strategy of ConvergEx Group, told CNBC earlier this year. He said in April that the market had become increasingly vulnerable to technical errors, and said that the new normal of heightened reliance on algorithms has been driven by many different forces including social media, the rise of high-frequency trading and the proliferation of exchange-traded funds.
“The changes that started with high-frequency and algorithmic trading are just the first step to an entirely different process of determining stock prices,” Colas wrote in a note that was sent to clients, according to the news source. “Will an equity market running on algorithmic autopilot serve to tie the managers of capital (senior executives) to the ultimate owners (shareholders) as robustly as one dominated by flesh-and-blood money managers? It seems a stretch to think so.”
Algorithms are already omnipresent in the financial services industry, and are capable of processing information far more quickly than a human being, Institutional Investor reported. In addition to the proliferation of these sets of rules that make use of information, massive amounts of information are becoming increasingly available.
Proliferation of news analytics
News analytics, an area of burgeoning technologies, has been making an effort to cull potentially actionable data from an ever-growing array of sources – including blogs, news articles and the financial statements released by companies, according to the news source. These technologies can potentially make data management more effective by linking trading patterns with specific demographics and groups of investors. Some believe that the use of this data could be a game-changer.
“Will this source of information change the investment industry? Undoubtedly, the potential is there,” Wesley Chan, who serves as Boston-based Acadian Asset Management’s director of stock selection research and prior employee of Goldman Sachs, told the media outlet. “Accounting and market data became very important to the investment industry over decades. There’s no reason to think news analytics won’t have the same impact in an even shorter time frame.’
In addition to software programs having access to information that is far more vast and sophisticated, the research generated by analysts has become increasingly available due to the rising use of social media, according to CNBC. While many major financial services industry firms have been making efforts to conceal their information, keeping it away from those who would harness it for free has become far more difficult as a result of the rising use of social media platforms.
This development could cause the value provided by these individuals to deteriorate.
