Blackwattle CIO Michael Skinner examines why the industry’s data spending arms race has hit diminishing returns, and why AI is set to commoditise data further still. He argues the real edge now lies in judgement, organisational speed and trust, not data spend.
In the data arms race of investing, judgement has never been so important.
In 1980, Sanford Grossman and Joseph Stiglitz published a paper with an inconvenient conclusion for anyone selling market data: information earns a return only while it is scarce.
If share prices reflected all possible information and the efficient market hypothesis was true, nobody would be paid to do research, and alpha generation would be improbable, if not impossible. The market needs inefficiency to fund the people who make it efficient.
Almost half a century later, the funds management industry is determined to test the theorem again. Global spending on market data and analysis has set a record nearly every year for more than a decade. Over roughly the same period, the performance scorecard is somewhat underwhelming: return outcomes are dispersed, and many active funds underperform their benchmark over ten years.
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