Alpha goes to Primary School

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New York – In the world of equity research the Holy Grail is the quest for informational alpha. Increasingly, the stars in the research industry are hunting for unique primary data sources to fit into their knowledge base and/or models.  As a result, primary research continues to gain credence on the Street. According o our taxonomy, primary research includes subcategories as follows:

Channel Checkers—studies of downstream consumer behavior or other analysis of data that is “in the channel”. Recently this has been extended to supply-chain analysis.

Expert Networks—connect experts in a field to investors or analysts. An expert network is defined specifically a firm which assess he needs of a client and then assigns an expert. The client of the expert network is connected directly to the expert.

Data Miners—find nuggets of information hidden in huge data sets, such as DMV records, Auto Dealers data and similar information sets.

Search-based—research depends of the creation of web-crawlers that search and update information gleaned from web sites globally.

Market Research—one the main segments of market research is survey creation, execution and analysis. From the sample of survey respondents, one tries to estimate, for example, the demand for a particular product or service.

Access to Management—is the practice of connecting investors with the company management in those companies where the investor has an interest.

There is no question as to the value of access to management, expert networks, market research and channel checkers in terms of providing significant information alpha, but we feel that the really hot primary research topics are a result of trends that are apparent in the global economy.

One overarching trend is the democratization of data, given the massive amounts of available information on the World Wide Web. This means that investors will need to look even more intensively for unique information. It also means that trends may be hidden in an overwhelming amount of data and may therefore be overlooked. This trend points towards a growing usefulness of data mining firms and search-based web crawlers.

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