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Using Alternative Data for Investing

December 22, 2020 • Posted in Big Ideas

Many institutional investors are attempting to exploit alternative data (less structured and more obscure than traditional data) to boost portfolio performance, supporting a complex system of data collectors, aggregators and organizers. How do they approach this potential edge? In their October 2020 paper entitled “Alternative Data in Investment Management: Usage, Challenges and Valuation”, Gene Ekster and Petter Kolm describe the alternative data ecosystem. They identify and discuss obstacles and emerging best practices in applying alternative data for investing purposes. They illustrate potential effectiveness of alternative data methods via a healthcare industry example. Based on review of current alternative data examples/obstacles/practices and samples of daily medical purchasing activity by 778 U.S. healthcare facilities (2.6% of all such facilities) during 2015 through 2017, they conclude that:

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