Rocket scientists on Wall Street are set to be usurped by a new generation of 'data scientists', as investment banks combine new analytical approaches with the arrival of torrents of Big Data to transform their trading strategies, according to a new paper from BNY Mellon.
The paper predicts that 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.
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.
Jack Malvey, chief global markets strategist for BNY Mellon Investment Management and a co-author of the report, suggests that the ability of firms to take advantage of the stream of growing data will be constrained by the size of graduate talent pools offering a combination of computer science skills and data modelling.
"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," he suggests.
BNY Mellon is currently re-engineering its IT architecture to create a single shared data warehouse, capable of combining and ranking previously siloed data pools relating to clients and transaction reporting alongside regulatory reporting outputs and incoming waves of unstrunctured data from third party sources, including social media and market data.
Malvey believes the utilisation of Big Data in the early 21st century will be recalled as a very big plus for the global financial system.
"In our opinion, this will be a major positive disrupter in shaping a healthier and more prosperous future for the global financial system," he says.