New analytical approaches combined with the arrival of torrents of big data have the potential to shape a healthier and more prosperous future for the information-intensive global financial system, according to a white paper from BNY Mellon.
The paper was written by Jack Malvey, chief global markets strategist for BNY Mellon Investment Management and director of the BNY Mellon's Center for Global Investment & Market Intelligence (CGIMI); Ashish Shrowty, managing director, BNY Mellon corporate technology; and Lale Akoner, investment analyst, CGIMI.
The paper, A First Perspective: The Transformational Influence of "Big Data" on the 21st Century Global Financial System, predicts the financial system in the early 21st century likely will evolve even more quickly than it did in the late 20th century. 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.
"Will other unintended effects of big data be discovered?" asked Malvey, who questions if the quality of some financial decisions will keep pace with the stream of growing data. "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."
Superior information can lead to more decisions based on evidence instead of intuition, according to the report. However, the report notes that such conclusions are not guaranteed.
"The advancing utilization of big data in the early 21st century will be recalled as a very big plus for the global financial system," said Malvey. "In our opinion, this will be a major positive disrupter in shaping a healthier and more prosperous future for the global financial system."