At the Online Broker Summit in Chicago, Ronnie Jansson of Investopedia kicked off the morning with his Keynote on Big Data. Ronnie shared insights on investor behavior discovered by big data and how these insights can help online brokers activate accounts, and build digital client relationships through personalized experiences for investors.
As the Director of Data Science at IAC Publishing with a focus on Investopedia, Ronnie is responsible for capitalizing on the publisher’s big data to discover insights leading to new services and business transformation. His experience as a quantitative analyst on Wall Street, findings at Investopedia and a PhD in Physics fueled a unique view point on the financial industry, that was well enjoyed by Online Broker Summit guests.
Data science is fundamentally about understanding your user base to offer insights you can’t ask your business intelligence team to pull out for you.
A helpful use for data science is to create algorithms for recirculation. It allows you to provide users with content links relevant to what they are already reading, This keeps users “circulating” your site longer. It can also identify gaps in content, which is no small task for companies like Investopedia, whose site already has over 100,000 articles on finance and economics.
Analyzing user interest can help drive sales or inform new products. For example, it can identify a co-occurrence between users reading on multiple different topics, meaning if a person is interested in topic x, they’ll also be interested in topic y. This allows publishers to create content for an intent-driven audience.
Many insights gained from data science can benefit online brokerage firms, such as how market performance affects content consumption. For example, in a low-interest-rate environment, tutorials demonstrating how to invest in stocks became much more popular compared to those about bonds.
Location and reader demographics have an effect on content consumption as well. For example, New York-based consumers read more content on advanced topics such as structured products, while North American tech centres can be identified by looking at where those interested in stock options are.
Does the stock market affect what people are reading on Investopedia? Yes. In line with the saying, “Bad News Is Good News”, Investopedia’s readership increased during times of volatility and declined on habitual positive topics such as “Guide to Buying a Car”.
Setting out to create an economic indicator that could represent investor anxiety, Jansson began by pulling together highly trafficked articles and dictionary terms that tend to be anxiety-inducing. These included inflation/deflation, bankruptcy, default, default risk and short-selling. He then used specific signals, like September 2008, the Lehman Brothers collapse and the Greek debt bailout, to check whether consumption of anxiety-inducing content is correlated to market turbulence. It appears that it is.
Encouragingly, the one period where the Investopedia Anxiety Index was relatively neutral was when there was an extended period of long-term growth in the S&P 500 Index, which indicates that the Investopedia Anxiety Index is truly tracking something. Jansson then went on to see whether the Index could be a leading indicator of the CBOE Volatility Index. Using the entire time series, the answer, once again, appears to be yes.
Jansson noted the compelling example of the lead-up to the 2007-2008 financial crisis. Looking back at the Investopedia Anxiety Index before that period, the Index had been sounding an alarm for a year and a half prior to the crisis.
Although it’s still a work-in-progress, the applications of the Investopedia Anxiety Index could be significant. It could be used to predict severe market downturns, to isolate regional concerns or as a trading filter.
Look for diamonds in the rough, Jansson advises. “The Investopedia Anxiety Index is just looking at very old, mundane data lying around. That’s our traffic data. It’s our most boring term. But if we turn it into something that’s actually useful, then it’s a product that we will have and sell.”
Online Brokers are knee-deep in their digital transformation projects as the industry recognizes the need to improve the customer experience. Consumers have come to expect easy online services and are frustrated or simply disengaged when this is not delivered. A key component of easy online service is "personalization" to deliver the right information in the moments investors need it. Think about those moments when an application has surprised you with delightfully useful information. What better way to build trust with our clients than to detect their anxieties and to proactively reach out with relevant offerings so that we can be there for them in those moments that matter.