Value of Credit Cards Decreases In The Eyes Of Hedge Funds
Value of Credit Cards Decreases In The Eyes Of Hedge Funds. Credit-card data is favored by hedge funds as a shortcut to retail foot traffic. So that the funds no longer need to hire workers to count the cars parking outside of the stores. Or how many customers entered stores. The transaction data, which reflects consumer behavior. Allows hedge funds to predict retailers’ earnings and performances before the release of quarterly earnings reports.
However, as the COVID spreads all over the world, consumer behavior has changed significantly so that the value of credit-card data needs to be reconsidered. Moreover, other than credit-card or debit-card data, geolocation, satellite photos, email receipts, social media posts and more alternative data are now standing in the spotlight which somehow explains why credit-card data is falling in value to hedge funds.
Credit-card data could include your demographic profile, shopping preference, consumption level etc.
Your data is anonymized and aggregated with other consumers’ data. And then sold to hedge funds. The funds want to feed the data into their investment models as a complement to fundamental attributes and quantitative models.
Here comes the question: is it possible for hedge funds to interpret the data incorrectly?
According to Business Insider, Coatue Management’s $350 million quant fund significantly reduced its exposure to the markets since early April 2020. When the pandemic started to shut down the global economy. Coatue Management feared that the data during the pandemic would become skewed. In a way that would confuse the investing program.
Can our own experience illustrate this skew?
Compared to it in 2019, my annual account summary in 2020 says I spent 60% more on food and drink. Does it necessarily mean that I changed my budget on food? The fact is that due to lockdowns. My roommate and I spent most of the time together at home in 2020. As a result, we ordered food together using my food delivery account to save delivery fees. There are more examples like this that can prove that the credit-card data after COVID is telling a different story.
Let’s put aside the question on the reliability of credit-card data. Moreover, look at other alt-data that can potentially be more informational. In addition, a journal from CNBC report brings up a great example of how firms collect alt-data. For example, when you shop for a new pair of pants.
Satellites capture pictures of parking lots outside stores. Which the data providers turn into foot traffic data. So teh funds can better analyze retailers’ potential sales and revenue numbers.
The weather and traffic apps you installed on your phone can also do this job, tracking where you go shopping. If one decides to buy pants online. Rakuten collects our email receipts, if you use their cashback service.
Essentially you are selling your data to Rakuten for only 2-5% cashback on your purchase.
Even your post on social media is analyzed to get sentiment about the top retail brands. Those data can all be served as alternatives to credit-card data and make credit-card data no longer the only beloved.
In conclusion, this article is not to convince you that credit-card data is becoming useless. But to raise a point that credit-card data is not a silver bullet.
As consumer behavior has changed so much by the influence of COVID, hedge funds are not relying on indicators from credit-card data solely.
Lastly, we don’t know how hedge funds will adjust their models to accommodate this change in consumer behavior. Furthermore, takeing other alt-data into consideration. But, we do know that credit-card data is falling in value to hedge funds.
Value of Credit Cards Decreases In The Eyes Of Hedge Funds Written by Yiyi Xu
References:
https://www.cnbc.com/2019/04/23/how-hedge-funds-use-alternative-data-to-make-investments.html
Leading Artificial Intelligence and Financial Advisor – Rebellion Research
