Privacy vs. Alpha: A Conversation

Abstract

Privacy concerns are the elephant in the room as we seek investment alpha from alternative data. This article introduces and discusses how we may be underestimating the tail risks for an investment firm in the presence of unclear regulation, noisy data, and moral hazard. It introduces two potential solutions, the first is a risk mitigation solution from the field of healthcare of better oversight and incentive alignment, and the second a reward increasing solution of privacy friendly alpha by design.

Keywords: Data Privacy, Investment Alpha, Big Data, Machine learning, Moral Hazard