We are harnessing the unprecedented flood of data to unleash its value to financial managers. We do this by anchoring our analytics in social science theory and advanced text analytics to identify market trends with a broader set of nontraditional data.
Uncertainty is a broadly recognized influence on economic activity.
Uncertainty is a broadly recognized influence on economic activity. The relationship between uncertainty and economic welfare has been well documented in economic literature and recent research has demonstrated a strong correlation between reduced levels of investment and higher levels of uncertainty. Increased uncertainty is known to cause consumers and firms to pare back spending and will drive capital towards less risky investments (i.e., gold, US Treasury Bonds).
Though well understood theoretically, the notion of uncertainty has been in practice, more difficult to measure and quantify, and subsequently less useful to those in the financial industry. We have developed an innovative way of quantifying uncertainty in the narrative that corporations, the Federal Reserve, and traditional business media post in the public domain. Using advanced text analytic methods, three separate indices have been developed that have been shown to be useful indicators of economic risk and provide predictive capability in future market conditions:
• S&P 500 Uncertainty Index (SP500 UI): Measures changes in uncertainty across the broader U.S. Economy as expressed by public statements and corporate documents of all of the companies in the S&P 500.
• Federal Reserve Uncertainty Index (FED UI): Measures uncertainty as expressed by public statements and testimony of the Federal Reserve.
• Daily Uncertainty Index (DAILY UI): Measures the daily level of uncertainty as expressed by traditional business journals and news reports.