Alternative data. Know of it or use it (effectively) in your financial organization? If not, do so at your own peril, because there is an explosion of data occurring all around you. Press releases, SEC filings, investor presentations, public records, ratings, social media, product reviews, job postings, and other information are just a part of what is considered alternative data, and it can be incredibly difficult to get to through traditional data collection methods BUT can also include highly valuable information needed for analysis of all types, and particularly useful in financial analyses and transactions. In the guest post below, Bitvore Chief Data Officer Greg Bolcer educates us on the many uses for alternative data and more. Take some time to read this piece and then think about the myriad of ways financial institutions can use this type of data for a competitive edge or deeper insights into their clients or investments. Fascinating!           
Cindy Taylor/Publisher


What Is Alternative Data And Why Is It Important?

By Gregory Bolcer, Chief Data Officer, Bitvore

Alternative investment data, or alt-data, can be as simple as measuring and tracking positive or negative sentiment on news around a company. Or as complex as looking at non-traditional data that's not commonly collected and correlating the data to the performance of a company.

Traditionally alt-data came from paper receipts of various things that weren't originally available in electronic format or private company information that either isn't shared beyond the individual line-of-business or not captured at all. The latter typically happens when the storage costs can't be justified by any value that the data might provide—even though the data might be valuable when combined with other things.

Alternative data can also be something that is derived from individual or aggregate data by algorithms or machine learning to traditional sources so that results can be used as inputs to other analyses. Some of these sources are available through news, government agencies, the companies themselves, or from licensing or purchasing data from other service industries.

One especially critical thing about alt-data is that it has a network effect. A network effect is when the value of the whole network is exponentially greater than the sum of any individual piece. A telephone for instance is worthless if you are the only one in the world that possess it. The more people that have telephones, the number of potential calls between them goes up exponentially, and so does the total value. If there are telephones in the world, the value is thus the value is proportional to 2^n.

Storing alt-data just for the sake of storing data has a cost associated with it because most alt-data is either costly to collect/extract or costly to store and analyze because of the size. There are nearly infinite ways you can assemble all of the data together into collections. Each collection can then also interact with the other in valuable ways, thus the value is proportional to thus the value is proportional to 2^n.

While theoretical value of combining data can be calculated, using the data takes a little longer due to having to overcome justifications for the adoption costs.

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