Even as the state of the global economy seems to be improving, the $1.5 trillion hedge fund industry is still in many ways trying to find its footing. Facing pressure from investors for better performance, hedge funds are turning to events and event data as a new way to generate alpha. According to the Hennessee Group, hedge funds that have event driven strategies (i.e. they are dependent on an "event" as the catalyst to release the position's intrinsic value) have the highest YTD performance (9.54%) 1.5% higher than any other strategy listed. Event data can be defined as highly structured factual information related to breaking events that trading firms can use to make reliable, real-time programmatic decisions. This form of information is structured and distributed more like market data than other forms of textual real-time information, such as news or even machine-readable news.
While two years ago investing in low latency was a clear path to generating returns, for hedge funds, that low latency arbitrage opportunity is slowly slipping away. Now speed by itself has become a commodity and the strategy of simply being faster is significantly more competitive. Over the past nine months, I have seen hedge funds increasingly using event data such as breaking corporate data in their strategies to bolster their arsenal of event-based trading strategies. Once exclusively employed by high-frequency proprietary trading (HTF) firms, real-time earnings data allows fund managers to take advantage of news as it gets released, resulting in the immediate ability to exploit price movements generated by a company’s earnings results. Driven in part by the general electronification of the capital markets and deeper liquidity outside of normal trading hours, hedge funds now have the technology, market access and sophistication to take advantage of these types of news announcements. In fact, according to a recent Automated Trader survey, 21% of trading firms said they are now using news and event data feeds — and I expect that number is set to grow even higher in the coming years.