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On financial information and market efficiency

How the tech gap challenges market fairness

On financial information and market efficiency

The explosion in available data is creating a wide gap between the few top-tier finance institutions capable of developing in-house big data technologies, and everybody else. A basic premise for market efficiency and fairness is that investors have equal access to information. However, investors may have full access to information, yet not be equipped to make sense of it. Exabel’s mission is to make state-of-the-art AI technology accessible to investors worldwide.

The role of markets and information

At Exabel, we are fascinated by the financial market’s essential role in all of today’s well-functioning societies. No other system has proven more effective at allocating capital to spur economic growth. Likewise, no investment objects offer people better ways to grow their savings and retirement funds over time.

Whoever is best informed, has the best chance to succeed.

As data scientists, we also find the financial markets intriguing because of the make-or-break role of information. To say that information is everything is no exaggeration: whoever is best informed and able to make the best judgement calls, is best positioned to succeed.

However, we recognize that financial markets can be more or less fair, and serve their critical role more or less well. The crucial role of information leads us to reflect on how information is organized and regulated in financial markets.

A well-established premise is that all market participants should have equal access to the information that drives markets. Most countries have introduced laws against insider trading, for example, as a way to prohibit information imbalances. In the second half of the 20th century, small and large investment institutions alike were able to base investment decisions on similar knowledge.

21st century pains: data overload

We argue that this century looks distinctly different.

Digitalisation of all aspects of society has brought about an explosion in the volume of available data that can help inform investment decisions. For example, every single minute(!) sees the release of more than 1,400 news articles, 3,400 blog posts and 474,000 tweets. An ever-increasing number of datasets are made available to investors, such as satellite imagery, location data, and online search trends.

Equal access to such massive amounts of data does nothing for market efficiency as long as market participants are not able to analyse them: to translate them into valuable insights, and understand and act on them.

Critical tools reserved for the top-tier players

A handful of top-tier global investment banks and hedge funds have the resources to make the transition into tech-savviness. Using 21st century cloud computing and machine learning, they are now able to analyse and extract insights from massive datasets at an unprecedented scale and speed.

Goldman Sachs now employs more programmers than Facebook.

Goldman Sachs now employs more programmers than Facebook (source). JP Morgan Chase spends close to $10 billion on technology every year (source). The hedge-fund behemoth Bridgewater wants most employees to be programmers (source).

The cost associated with building the necessary technology makes it practically impossible to all investment firms but the aforementioned few. Most investor groups simply don’t have the scale to successfully invest large amounts in data science teams, in technology infrastructure, and in the necessary know-how. Access to volumes of data is no longer a gift, but a curse; it overwhelms rather than informs, and confuses rather than clarifies. Investment professionals globally find themselves in a state of information overload, and it is only getting worse.

At Exabel, we are concerned that this growing gap poses critical problems to the fundamental premise of market efficiency and a level playing field for all market participants.

Enter Exabel: closing the tech gap

Exabel’s mission is to make state-of-the-art AI technology accessible to investors worldwide.

Exabel was founded in Oslo in 2016 based on the belief that the financial system will best serve society with fair, open and efficient markets. Our contribution is to level the playing field by making state-of-the-art AI technology accessible to all investors globally. Ensuring that all market participants have the necessary tools to make informed investment decisions will ultimately lead to fairer and more efficient financial markets, to the best of society.

Learn more about how we address this formidable challenge:

Exabel is a finance technology company based in Oslo, Norway.