Topic 9.6 - 9.12: Big Data & Machine Learning in the Financial Industry

Question 1

Define alternative data and list examples of alternative data.

Answer 1

Define alternative data and list examples of alternative data.

Question 2

List the most commonly used types of alternative data

Answer 2

• Satellite imagery
• Social-media streams
• microdata about consumers
• data scraped from internet
• data exhaust

Question 3

Explain why the alternative data’s core value proposition is different for
institutional investors.

Answer 3

It boils down to patience (inst. investors have long time horizons).

Question 4

Discuss why the most in-depth value proposition alternative data has for institutional
investors entails defensive and defensible strategies.

Answer 4

Discuss why the most in-depth value proposition alternative data has for institutional
investors entails defensive and defensible strategies.

Question 5

List examples of how alternative data may be used defensively for understanding risk.

Answer 5

• harvesting dynamic pricing information to better estimate inflation.
• Aggregating label information (nutrition facts) to see how they may be vulnerable to shifting dietary trends

Question 6

Discuss the applications of alternative data to risk measurement and management for institutional investors.

Answer 6

• mitigate shortcomings of traditional risk measurements
• Earlier detection gives investors more time to react to downside events.
• Higher likelihood of catching anomalous behavior

Question 7

Describe the operational alpha gains by institutional investors through the use of
alternative data sets.

Answer 7

better align operating resources with investment strategies by eliminating internal inefficiencies.

Question 8

Discuss why the volume, veracity, and velocity of big data may not determine
the value of alternative data for institutional investors.

Answer 8

None seem to explain how specific properties of an alt-data set should translate into value

Question 9

Describe the six-dimensional characterization of alternative data

Answer 9

Reliability: accuracy/verifiability
Granularity: Scale of data
Freshness: Age of data
Comprehensiveness: portion of domain data covers
Actionability: Degree to which actions can be taken
Scarcity: how widely available is the data

Question 10

Discuss external asset managers and alternative data providers as methods
of accessing alternative data

Answer 10

Use external asset managers to access alternative data for quick access.

with Alternative data providers there are less concerns about transparency.