What Is Alternative Data and How Does It Work in Finance?
Alternative data are non-traditional data sources that financial analysts employ to get insights beyond conventional financial statements and reports.
Examples of alternative data:
• Analysts can examine a company’s performance using geolocation data from mobile devices, which shows foot activity in retail locations.
• Social media sentiment analysis on platforms like Twitter can forecast market trends and consumer behaviors.
• Satellite imagery provides real-time economic indicators by capturing activity levels at manufacturing sites and retail establishments. Applications in Finance: • Investment Strategies: To find dangers and investment possibilities that standard data might miss, hedge funds and asset managers use alternative data.
• Lenders employ alternative data to assess the creditworthiness of borrowers with low credit histories, promoting financial inclusion.
Considerations: The use of alternative data presents ethical and legal concerns, including privacy and data security. Financial organizations must manage these hurdles in order to use alternative data ethically.