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Parking Lots Don't Tell the Whole Story: The Trouble With Alternative Data

Finding an edge in satellite images or social media posts is only getting harder and riskier.

Flags fly as pedestrians walk past the New York Stock Exchange.
Photographer: John Taggart/Bloomberg

It’s simple, really: To beat the market, just have insights before everyone else. Some try to stay a step ahead using brute force. Hedge funds across the globe have spent billions on super-high-speed internet connections and prime real estate to place their servers within spitting distance of an exchange. Others go for guile. Hire the biggest brains and let them (or their algorithms) slice and dice, correlate, and sample widely disseminated data to identify trends and relationships the competition can’t. Then there are those who’ve tried to go to the frontiers. Let everyone else scour the well-trodden ground of sales or earnings figures; they’ll look at alternative data such as satellite imagery of parking lots to track sales before they’re reported. Problem is, the alternative data space is looking a bit well-trodden itself. So while finding an undiscovered signal remains the grail, seeking it on the data frontier may bring its own set of difficulties.

“Having a wealth of data is great, but only if you really believe it is going to improve your ability to forecast and capture market inefficiencies or risk premia. Available information is not synonymous with useful information.”
Ray Iwanowski, Managing principal and co-founder Secor Asset Management LP