Hyunyoung Choi, S&P Global

Credit Risk Analytics/ Building business case for Alternative data

Alternative data in finance has become an important input in the investment process. Alternative data can be compiled from various sources such as financial transactions, sensors, mobile devices, satellites, public records, and the internet and it is compared with the traditional data sources such as investor presentations, SEC filings, and press releases. The challenge we face in developing the alternative data product is to educate the market so that they understand the value of new data. Internet search data offers a window into the information-gathering activities of many people. Such data has proven itself a useful resource in a number of domains, as researchers have established links between online search data and reports of flu infections, the popularity of films, games and music on their release, unemployment rates, tourist traffic, stock returns and trading volumes in U.S. stock markets. We propose the Kensho Finance Stress Indicator (KFSI) that measures consumer’s financial stress through their search behavior. KFSI is a strong leading indicator of financial stress in addition to traditional financial data. In order to show the use case with alternative data, we built Credit Risk Analytics leveraging KFSI. Credit Risk Analytics includes KFSI, net charge off forecast from a predictive model forecasting the net charge offs and a solution to comply with CECL requirement.