Alternative Data Will Help Predict Economic Recovery

Posted on June 9, 2020 by Tamar Weiss

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Experts say the impact of the coronavirus on the global economy will take years to recover, and many forecast a global recession. We’ve been watching the staggering figures: over 40 million people unemployed in the US alone, current estimates of a 30% decrease in GDP in the second quarter, and the official end of a 20-year bullish run on Wall Street. These numbers are terrifying. And no one really knows how the COVID-19 pandemic will play out the rest of the year or in 2021. 

But there is still room for hope. 

“The length and depth of this recession depend on two things: Containing the virus and having an effective, coordinated response to the crisis,” warned Kristalina Georgieva, the director of the International Monetary Fund (IMF).

So how can investment managers be more confident in the face of all this bleak news? Is there a way they can leverage data to their advantage and even start to see some indications of a recovery in the near future?

 

One answer lies in alternative web data.

 

The Many Faces of Alternative Data

We’ve written about alternative data previously and its role in the financial market. To quickly recap, alternative data is defined as data beyond the traditional data sets of SEC filings, earnings reports, and pricing info. 

 

Some examples of alternative data sources include satellite data, credit and debit card data, and web data. These have all become more popular as hedge funds sought to leverage them, quickly gaining traction in other buy-side investment institutions as well.

 

The fact that the growth in spending on alternative data by financial institutions (i.e. mutual funds, hedge funds, pension funds, and private-equity institutions) has skyrocketed from $232 million in 2016 to an estimated $1.7 billion in 2020 only emphasizes the opportunity they see in it. 

The fact that the growth in spending on alternative data by financial institutions (i.e. mutual funds, hedge funds, pension funds, and private-equity institutions) has skyrocketed from $232 million in 2016 to an estimated $1.7 billion in 2020 only emphasizes the opportunity they see in it.

Let’s take a look at a few examples of different types of alternative data is being used to forecast economic recovery:

  • Investors are combining pollution data with migration data from Baidu along with traffic congestion and coal consumption. Together it can deliver a more accurate picture of which cities in China are on the road to economic recovery.
  • The United States Bureau of Transportation Statistics (BTS) has started to analyze freight movement to be an early predictor of economic recovery. Their research has found these numbers to be a 3-4 month early indicator of the economy picking up.

It’s important to remember, however, that each type of data has its limitations. For example, relevant satellite data for investment managers forecasting the coronavirus recovery in specific cities might include analyzing pollution data and footfall data. But pollution data can often be rendered useless by inclement weather conditions and footfall data can be greatly affected by seasonality.

To make sure you gain a full picture of what’s going on in the global economy, you’ll need to rely on a combination of different types of alternative data – and that includes alternative web data.

The Added Value of Alternative Web Data

Why alternative web data? First, it’s a massive resource: Experts estimate there will be 4 billion webpages and 1.2 million terabytes of data on the internet by 2025. That’s the kind of data that Investment management institutions will want to leverage. Second, the scale and diversity of web data is vast enough to offer highly personalized and relevant datasets for specific industries and use cases.

Take SESAMm, a big data company that helps clients construct financial markets forecasts and strategies for global asset managers. They harness web data of news articles, blogs, and discussions from over 2 million sources and apply natural language processing (NLP) to build custom indicators based on sentiment, emotions, and ESG scores on a wide variety of financial assets. They have focused on the effects of the coronavirus on 30 large EU, US, and Japanese companies and published their analysis in this report on their blog.

A Winning Combination of Alternative Data Sets

There is an urgent need today for alternative data to fill in the gaps for the sudden lack of traditional data. Alternative data, in all its forms, offers fresher data at a higher frequency than traditional data, which can be an invaluable source for investors and countries looking to forecast economic growth. And alternative web data offers accuracy and potential for highly personalized datasets that have enhanced their signal. So it shouldn’t be surprising that alternative web data became one of the first types of alternative data that financial institutions invested in (right after credit card data) when they started to embrace alternative data as a whole.

As the world slowly finds itself moving towards economic recovery, the combination of different types of alternative data – including web data – will be essential to accurately forecast economic recovery. At Webhose, we’re proud to deliver the most comprehensive, structured, and up-to-the-minute web data to our customers so they can leverage it and gain better – and hopefully more optimistic – insights into the economic recovery in the days and months ahead.

Want to learn more about how alternative web data can be used to gain insights on the financial market?  Schedule a call with our data experts today!