The Role of Big Data in Investing

Big Data refers to large sets of complex data sets. It has variety and volume so huge that it is difficult to make sense of it without proper processing. By processing big data, one can leverage it for quicker and better decision making.

With the advent of big data, financial institutions are adopting new methods of building investment models. Big Data is playing a noticeable role in investing, wherein analytics is being used widely to make investment decisions. Given the huge quantum of financial data available in real time, big data holds a promising future in the investment world for fund managers for efficient fund management. Data-driven fund management solutions can be considered as an alternative to alpha generation for investors.

Data models are fast gaining prominence

Data has become very important in the fund management process.. Fund managers are increasingly using data-oriented techniques in modelling to evaluate securities based on real-time events, Already, a lot of data such as financial reports, earnings calls, disclosures, historical records has led to a data explosion. Analysing these large sets of data in a structured form can accelerate decision making and add value to the overall investment process.

New investment parameters and analytics are being deployed to evaluate the impact of a myriad of factors on stock prices. Portfolio managers are also leveraging models to assess risk in real time. Further, they are increasingly using data to test their investment hypotheses.

The scope of data-driven investing

Investment managers across the world have been leveraging the systematic data-based approach to make investment decisions. One example of this is the rise of Quant Funds, a data-based model used for selecting stocks in the portfolio. These funds screen and filter the universe of stocks using a set of pre-defined criteria based on the investment strategy. Models are also being used for monitoring and rebalancing portfolios of funds. In India, as markets move towards maturity, huge amounts of rich historical data is available, making it well-poised to make the most of data-driven investing.

While data is being used as a basis for investment models, the judgment of portfolio managers derived from their experience cannot be understated. The combined power of data and human intelligence can help build better models, taking investing to new frontiers. Judging by the pace of the data revolution, it seems we are only getting started.

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