The Value of Alternative Data: The case for media sentiment

This white paper addresses the question of the value of alternative data in the investment process. We propose a quantitative framework to assess the added value of an alternative data set on the basis of a backtesting process, in combination with the so-called GH1 measure, which takes into account both return enhancement and risk reduction, with respect to a particular benchmark. We illustrate this framework on the example of Refinitiv News Analytics data (formerly TRNA), which is used as a standalone investment signal as well as combined with the traditional multifactor investment strategy. We demonstrate that this alternative data set provides significant value to investors: using media sentiment as the single factor achieves the same investment results as the full-blown multifactor strategy. We show that the value of alternative data depends on the investor type, and calculate the monetary value of this data set for various types of investors. Finally, we show that, even for a small size fund and simple strategies, typical recovery factors from purchasing alternative data make a compelling business case for including alternative data (such as sentiment) in your investment strategies.