Opportunities and Challenges in the Use of Alternative Data

The term alternative data has become a term frequently seen in newspapers and magazines. Until now, the data used to understand the current state of the economy con-sisted of government statistics such as GDP data and corporate data such as corporate financial statements. This data was, for example, the source of information investors used to buy and sell securities in financial market. These types of data are called traditional data. Now, alternatives to such traditional data called alternative data have emerged. Examples include scanner data from supermarket checkout counters, credit card transac-tion data, and location data from smartphones. While alternative data already existed pri-or to the pandemic, it was only used by a few financial institutions and investors, and awareness of it was not very high. However, it came into widespread use with the onset of the pandemic, and its use has continued to grow after the pandemic. This chapter first looks at the current state of and future prospects for alternative data and discusses some of the challenges that may arise as its use expands. Then, two examples of the use of al-ternative data are presented. The first is an analysis of changes in consumer behavior during the pandemic using smartphone location data. The second is an analysis of changes in the network structure between consumers and stores using credit card transac-tion data.