It’s a case if you can’t be it, join it. Wall Street firms, long wary of social media and giving away their trading strategies, is now embracing the medium as a means for finding new ways to find alpha and actionable trading data.
Social media analytics’ adoption has moved beyond an embryonic stage where primary users have been hedge funds and quant firms. Increased adoption by long-only and fundamental asset managers has focused on five specific approaches to mining data and a push for better integration into workflows as the playing field continues to expand. However, according to new Tabb Group research, it’s not a question of if, but how quickly it will be adopted by a wider range of firms.
In its newest report, “Social Alpha 2.0: Sifting through a Sea of Signals,” Tabb examines the different types of social media analytics firms and the emergence of new users and use cases. It also includes 14 social media analytics start-ups within the financial markets vertical: Alphamatician, Contix, Eagle Alpha, Heckyl, HedgeChatter, iSentium, Knowsis, Market Prophit, MarketPsych, PsychSignal, Social Alpha, Social Market Analytics, TheySay and TickerTags.
Specialized areas of social analysis are currently focused on financial chatter, influential people, event detection, trend identification and sentiment analysis. “But in the next year,” said research analyst Valerie Bogard, who wrote the report, “we expect the definition of social analysis will expand, adding new metrics and data sets.”
According to Bogard, who co-authored “Social Alpha: Channeling the Chatter” in 2013, several of the analytics firms are developing technologies to detect abusive practices and monitor deceptive messages within social media as well as seeking partnerships with large data providers and technology companies to boost adoption.
One of the most significant progressions for social data is its transition beyond being just a trader’s tool. Bogard noted that over the last couple of years, social data captured the interest and imagination of research analysts, portfolio managers and compliance desks, and has been transformed from a basic buy/sell signal to a full component of the research process and another way to manage risk. Whether it’s supporting a qualitative or quantitative research approach, social media analysis is best used as one component among many.
“Despite the recent growth spurt, mining social media for financial purposes is still very much in the early stages,” Bogard said, “but use cases will continue to explode and five years from now, trading firms and funds will find it absolutely necessary to be knee deep in some form of social data.”
The 18-page, 8-exhibit report is available for download by TABB Group Research Alliance U.S. Equities clients.
