We were recently asked to give a presentation to approximately 2,000 Fidelity Brokerage customers on how social media and big data are transforming investment research. Here is the link to the full presentation: Integrity Research New Approaches to Stock Research.
We covered four main themes: 1) social media’s impact on research, which we divided into four segments: news, market sentiment, data mining and research distribution; 2) how big data is increasingly a part of the investment research process; 3) crowd-sourcing and automation; and 4) examples of abuses involving social media or big data. All the examples were taken from articles available to ResearchWatch subscribers, although since we were presenting to a retail audience we kept the discussion broad. If you want more details, let us know, or you can search ResearchWatch.
We argued that social media’s influence on research will deepen for demographic reasons. As millennials (and the succeeding Generation Z) continue to come into their own, there will be two mutually reinforcing effects: 1) the quality of social media data will continue to improve as it becomes even more central than it is today; and 2) social media will become more integrated into financial markets as more digital natives become producers and consumers of research.
At the same time, crowd-sourcing and automation are transforming research. Historically, most investment research has been produced by investment banks. Regulators have tried to minimize the inherent conflicts of this model, but a broader problem has been that most research is targeted to institutional investors not retail investors. Crowd-sourcing and automation, combined with the increasing role of social media in markets, is changing this, democratizing investment research. And, although we did say this in our presentation to retail investors, as the soft dollar subsidy for institutional research becomes more problematic, institutional investors will seek ways to collectively create their own research collaboratives.