Tag Archives: risk

Risks of Big Data and Investing

Published: March 20, 2014

By: Kevin Coogan

Of course, there is both a bright side and a dark side to any radical shift.  The shift that Big Data is producing and will continue to produce in society will create winners and losers.  Finance and investing will be no different.

Those embracing Big Data and figuring out the best ways to leverage it will capture alpha like never before.  The very best of these will in fact become the new Buffets, Soros, and Simons.

The downside is that many, if not most, will continue along the same traditional path. They will follow the inertia of their investment process and hope for better days. They will likely ignore new data and analytical techniques until they are forced upon them.

At this stage, there is risk in all directions. This is exactly what finance guys do not want to hear.  Diving into new data and analytics is risky, as is staying out.  Really the question becomes which is more risky and at what point do you need to make the decision.

In many cases, it is difficult to fully back-test newer sources of data and concepts due to restrictions on historical data (meaning the data just does not go back very far).  Additionally, many of the current datasets are yet to be fully standardized and vetted.  Lastly, although academic research is starting to pick apart Big Data in general, it still pales in comparison to the decades of acknowledged research supporting traditional financial data and analysis.

But the other choice of putting your head in the sand at this important turning point in financial history does not appear to be such a low risk move either.  Big Data is no longer coming, it is already here.  To ignore it at this stage is the real risk.

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