How alternative data is changing the investment landscape

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Overview

Market participants have an increasing abundance of information to facilitate investment decisions. Big Data, large volumes of structured and unstructured data, has expanded the universe of information.

Market participants should consider how alternative data, or data generated by individual “users”, business processes, and sensors, can complement traditional sources of data such as company-specific financial metrics, economic statistics, and government reports, for the investment decision-making process.

Alternative data investing

Traditional methods of investment analysis

Fundamental analysis is the foundation of research and analysis in capital markets. Market participants may assess company and industry fundamentals by evaluating a company’s financial statements and the competitive landscape, evaluating financial ratios, and researching other relevant information to assess company performance in relation to the markets.

Market participants have historically leveraged traditional valuation methodologies such as discounted cash flows, recent transactions, and public company comparables using structured market data. Investment analyses also involve qualitative assessments of trends and market sentiment to inform investment decisions. The rise of viable alternative data sources and analytical tools is changing the way market participants analyze companies and the markets.

Alternative data’s use in investment analysis

The rise of alternative data’s use in the investment decision-making process has been driven by the increased availability of data, a decline in technology costs, expanded data storage capacity, and increased computing capacity.

Consumers are sharing more information than ever on social media platforms, connected devices, and through other publicly available sources. Much of this data is unstructured, requiring complex analytics to convert individual data points into actionable intelligence.

Advancements in artificial intelligence and machine learning have made complex, unstructured alternative data more accessible and actionable to market participants. The speed at which data is processed and analyzed makes alternative data a valuable and viable component to investment analyses today.

Factors to consider as a market participant

Market participants may incorporate alternative data in addition to traditional methods in order to perform a more holistic investment analysis. As alternative data becomes more widely collected and disseminated, efficient and effective analytics will become the new norm. Staying ahead of this trend when it comes to the knowledge and tools needed to analyze alternative data will be the key to investment decision-making in the future.

Next steps

The alternative data series will take a deeper look into the impact of how the investment decision-making process is affected by usergenerated, business generated, and sensor generated data.

How PwC can help

PwC's Financial Markets practice is a global network of teams consisting of more than 400 financial products specialists operating in more than a dozen cities across the United States and several key locations throughout the world.

The Financial Markets practice interacts and has built lasting relationships with key stakeholders in the financial services and corporate industries. This, coupled with their ongoing conversations with regulators, makes the Financial Markets practice uniquely positioned to work with clients to deliver sustainable solutions, whether that be in the regulated or non-regulated space.

Contact us

David Lukach

Partner, PwC US

Frank Serravalli

Partner, Financial Markets, PwC US

Tel: +1 (646) 742 7510

Chris Merchant

Partner, Financial Markets Group, PwC US

Tony Diab

Manager, PwC US

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