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Big Data Could Transform Global Financial Markets

Analytics unlocked by big data technology could change the way that financial services firms do everything from asset allocation to customer service, according to a report from BNY Mellon.

Big Data is a big topic in academic and high-tech circles. And in case you haven't noticed, it's a big -- and growing -- topic in financial services too.

In the next few years, expect big data to change the way financial services firms approach almost every part of the business, from asset and risk management to determine credit worthiness and trading, according to a new white paper from BNY Mellon.

The paper, titled "The Transformational Influence of 'Big Data' on the 21st Century Global Financial System," predicts the financial system in the early 21st century will evolve even more quickly than it did in the late 20th century and big data will lead to new approaches in all phases of financial markets, including asset management, research, analytics, asset allocation, trading, and risk management, according to the report. For example, fundamental equity and credit analyses likely will become even more granular in detail and lead to greater emphasis on issuer differentiation.

[To hear how more firms are tacking the big data challenge, read: Demand for Deep Analytics Challenges Data Managers].

Many financial firms are currently working on big data initiatives, although some are just pilot projects at this time. Larger organizations, such as State Street, Citi and JPMorgan, for instance, have building technology pilots for a few years. Other organizations, such as mid-tier and smaller firms, are also looking for ways to leverage big data for improved metrics, business performance and customer service. Many smaller organizations that do not have sufficient IT infrastructure to handle big data initiatives are working with partners, such as Nasdaq OMX's FinQloud, Amazon Web Services and others to build out big data projects.

The paper was written by Jack Malvey , chief global markets strategist for BNY Mellon Investment Management and director of the BNY Mellon's Center for Global Investment & Market Intelligence (CGIMI); Ashish Shrowty, managing director, BNY Mellon corporate technology; and Lale Akoner , investment analyst, CGIMI.

"Will other unintended effects of big data be discovered?" asked Malvey, who questions if the quality of some financial decisions will keep pace with the stream of growing data. "As technology makes broader and deeper decisions, financial decision-making accountability may need to move beyond the realm of financial experts to diverse teams that include data scientists."

The report suggests that big data could make markets so efficient that active investment managers will need to find new outperformance methods. Well-known risks to investors such as surprising economic data releases and disappointing corporate earnings could give way to new ones such as interruptions in the data highway, according to the report.

Superior information can lead to more decisions based on evidence instead of intuition, according to the report. However, the report notes that such conclusions are not guaranteed.

"The advancing utilization of big data in the early 21st century will be recalled as a very big plus for the global financial system," said Malvey. "In our opinion, this will be a major positive disrupter in shaping a healthier and more prosperous future for the global financial system." Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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User Rank: Author
6/30/2014 | 10:34:57 PM
Re: Big Data and the Stock Market
This is an interesting viewpoint. Index fund investing is already immensely popular but I would have thought that Big Data streams would help active managers search for alpha. Since Big Data is diverse and includes text, photos, sensor data, it seems that not everyone could be adept at processing this data. So for a few years, certain investors/traders would have an edge. Instead, it seems that these information streams will be rapidly absorbed by the market and it will become more efficient. What is the future of active management then?
Kevin Wenke
Kevin Wenke,
User Rank: Apprentice
6/30/2014 | 1:54:29 PM
Big Data and the Stock Market
The stock market has been easing its way into commodity status for a while. In 2013, 35% of investors money found itseft allocated into index funds. The reason for this trend has to do with financial advisors and asset managers who are unable to beat the markets already because of the speed information moves.

As big data organizes data threads making even more meaningful information available, efficient market theory will dictate that the only movements stocks will where an investor can make a profit is systemic as all data will be quantified when it arrives. My opinion is that big data will cause even more demand for indexing.

Therefore, it will be even more importand to protect against systemic risks efficiently and risks that can negatively impact their own personal life in order to find financial success as there will less opportunity to earn an above average return due to information sorting.
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