Utilizing Vestly, a Stock Trading Game, to Create a Competitive Alternative Data Strategy

Active equity managers can improve investment performance by identifying new data sources that predict stock returns. These new sources are known as alternative data and comprise an emerging financial data ecosystem. Integrating these value-added data sources into existing investment decision processes is challenging, and the value of these novel sources declines rapidly as competing managers adopt the same data. This study presents an innovative data strategy that simplifies the data adoption process and sustains the competitive advantage of the data. The proposed data strategy crowdsources stock-picking ideas via the Vestly stock trading game app, which drives the data-generation process (DGP) and collects ideas from players. The authors show that the Vestly DGP can deliver profitable investment signals. A simple long–short strategy generates significantly positive stock-specific returns over four years with an information ratio of 0.72. The authors' study demonstrates that managers can create their alternative DGP as part of a strategy to remain competitive in the new era of alternative data.