Indexer looks to tap quant fund demand for big data

MSCI’s historical real-time data could be used in backtesting strategies, pricing exotic options

MSCI is selling archives of intraday index data with up to 3 billion data points a year

A leading indexing firm has started selling datasets of historical intraday index data, which could be used by quant funds to backtest new trading strategies or by banks to price exotic options on the indexes.

MSCI is selling archives of real-time data for its 10,000-plus indexes – including specialist indexes, such as those weighted to value or momentum, for which equivalent data from futures markets is not available.

After road-testing the idea in meetings with about 30 mainly hedge fund clients earlier this year, the company is offering datasets that include minute-by-minute or more granular prices going back to 2002 – files of about 3 billion data points a year.

“Investors are looking for unique sources of information to build differentiated strategies,” says Brian Matthews, head of global market cap index products at MSCI.

MSCI says it is in discussions with “five or six” potential clients that are evaluating the product. “People who are interested in looking at big data and trying to find sources of alpha and develop strategies around those have been the first to show interest,” Matthews says.

One application of the MSCI data could be to identify whether intraday movements in factors have a higher tendency to mean-revert or to continue their trend, says Luc Dumontier, head of factor investing at La Française Investment Solutions. The asset manager is not currently talking to MSCI about its new offering.

Transaction costs

However, the high transaction costs that go with frequently adjusting factor portfolios could wipe out most of the possible returns, Dumontier cautions, adding: “You have to find a strategy with a very strong Sharpe ratio to compensate for the transaction costs.”

James Price, an investment consultant specialising in quant funds at Willis Towers Watson, says the dataset would be useful to exchange-traded fund (ETF) providers or managers looking to implement strategies based on the indexes and using leverage.

“If you start the day with the index at 100 and finish at 101, but the index dipped down to 50 at lunchtime, then if you’re three times levered in that position you’ve gone bust,” he says. “Looking only at end-of-day data won’t reveal that outcome.”

As for sell-side clients, Raman Subramanian, who heads US equity applied research at MSCI, says the indexing firm has spoken with one dealer about potentially using the data to price time-limited options on factor indexes at either end of the trading day.

That could appeal to banks offering guaranteed market-close pricing to ETF providers and index fund managers, for example. More broadly, historical intraday data would make it possible for banks to price a wider range of derivatives on MSCI’s indexes.

“If an investor wants some sort of tail protection for its factor exposures – essentially an option on the index – the party on the other side will try to model the cost to dynamically hedge that option through the day, and for that you need the historical data,” says Vitali Kalesnik, head of equity research at Research Affiliates.

Other major index providers such as S&P Dow Jones Indices and FTSE Russell do not currently offer historical intraday data to clients. 

“We occasionally get enquiries about this but it is often for indexes where futures data is already available, and typically people would rely on that data rather than the intraday index tick,” says Jamie Farmer, head of index data services at S&P Dow Jones Indices. “We have not made that data available to the market yet, although it is always something we would consider.”

So far, S&P Dow Jones Indices has responded to investors’ growing demand for data in other ways, for example by acquiring environmental data provider Trucost last year, he says.

“The investment process is so much more data-driven than it once was,” Farmer adds. “I only see that going one way.”

Deutsche Börse makes tick-level data available online for its benchmark indexes – including the Euro Stoxx50 and Dax – and deals with individual requests for bespoke index datasets case by case, a spokesman says.

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