this is also probably why your data is worth much much less than you think. there are very few things that correlate very strongly to stock performance. predicting human emotion is probably more important than predicting revenue growth or number of people who went inside a Starbucks last month.
But, given enough data-informed trades that would otherwise be proditable, the law of large numbers suggests that an overall strategy will still be sound. You can afford to have the market be irrational here and there if you really are correctly forecasting earnings in advance most of the time.
As an example, a hedge fund that consumes data capable of accurately forecasting earnings in advance can also diversify by consuming social media data. Matt Levine has written about profitable trading strategies developed with sentiment analysis on Trump's tweets. Instead of a hedge fund betting on the stock going up and getting blindsided by a random Trump tweet (or other irrational thing), it will use that as a signal if it can.
- a long history of data
- data that has low correlation to other available data sets
- a very small group of people who have access to this data( ie exclusive deals with a few funds)
Then its unlikely that you will be able to sell your data for any meaningful amount of money.
A few things the author wrote that I think deserve some attention.....
> You do hear the occasional story where a hedge fund paid a couple of millions a year to obtain a specific data set, and occasionally more. But there’s a reasonable chance that this type of price came with some kind of exclusive. Also, those contracts also probably have a limited shelf life, as the value of a data set decays over time, as per the above.
This is very true, almost certainly your data set is not worth millions a year to any specific fund. And if it is, its because you agreed to make your data set exclusive to a single fund.
Each data set requires its own special mess of tools for cleaning it, integrating it, figuring out how to generate a trading signal from it, putting it into production and then once its in production constantly monitoring it not only to verify the data is good, but to make sure it actually benefits the trading system.
I wrote this comment: https://news.ycombinator.com/item?id=13140352 a while ago and it got a very large number of up votes for what was essentially a rant that we're now drowing in data.
Hedge funds today share alot in common with AAA video games wrt to data. You used to be able to make a game with 2 people, then it was 10, then it was 50, then 100, now its 500+ for a AAA video game.
Hedge funds have the exact same issue due to the explosion of data. I know alot of funds that are skipping on data sets, due to lack of bandwidth to consume them all.
> First of all, unless it’s already commoditized, you probably don’t want to sell your data to the Bloombergs of the world.
Most hedge funds won't be your direct audience, they'll already have spent money to buy data from Bloomberg and Reuters. The few, say top 100, that might buy your data directly could be your market, but these funds don't exactly have huge sales teams ready to talk to you. Which means you need to hire someone who knows the landscape to sell your data. Your sales team might be the best group of 25 year old Stanford grads around but they aren't getting in the door of most quant funds without an introduction.
This is the website of one of the worlds most successful funds. https://www.rentec.com/Home.action?index=true