Daily Fintech Conversations

Big Data powered Hedge Funds?

This article posits a renaissance of Hedge Funds based not on analysis of reported financials but on analysis of real world data that could drive those results.


What do you think?

I would see this as more of an incremental improvement, rather than any paradigm shift.

Just because the nature of the data stream changes (real time, more granular, IOT, etc), does not mean that the fundamentals of algorithmic analysis has changed.

Here is Lanier discussing this from his experience with LTCM.

Exact same truth holds for “disruptive” (its not) insurance ideas like Usage Based pay-per-mile offerings, and other telematic, IOT real time offerings that are starting to hit the market. No fundamental change, these offerings are still functionally industrial age insurance offerings, with some digital lip stick.

Frankly I am skeptical of ideas touting that alpha can be created in highly efficient markets. In Real Estate, sure, your experience can easily pay off with above market returns. However, in most of the big financial markets (equity/debt/derivatives) you have to get pretty over confident or fraudulent to think you can out smart the market continuously. Maybe on a single trade, but not repeatedly.

I think they would be better to employ some Complexity Economics research rather than try to front run the info/data stream.