The last decade has seen the rise in popularity of alternative data in financial analysis. This data is generally defined as any information that is not typically used in financial analysis, such as social media data, satellite imagery, and weather data. While alternative data has been used by hedge funds and other financial institutions for years, the increased availability of this data has made it more accessible to a wider range of investors.
There are a number of ways that alternative data can be used in financial analysis. One common use is to help predict consumer behavior. For example, data from social media can be used to identify trends in spending patterns. This information can then be used to make investment decisions or to develop marketing strategies.
Reference [1] examined the use of data on corporate job postings in investment analysis. It pointed out,
We demonstrate in this study the power of a new alternative data – corporate online job postings – to separate highly valued firms from overvalued ones: firms with high job posting rates are more likely to stay in the highly valued group (top 30% MB), whereas low job posting firms tend to significantly drop in value. Furthermore, we show that information contained in firms’ online job postings predicts firms’ performance as measured by sales and gross profit growth rates. Our findings suggest that, in addition to identifying overvalued stocks, job posting data can enhance financial analysis and securities’ valuation in general. The search for alternative (to financial report) data—a major occupation of fund managers—is a promising area for accounting researchers.
In short, job posting data is useful in investment analysis and securities valuation in general.
Interestingly, the authors also predicted how their research results would impact the job market,
Once our study becomes widely known, managers of over-valued firms trying to manage or justify over-valuation may inflate job postings. If online job postings are relatively costless, the power of our measure may be diminished when managers start manipulating online job postings.
Such manipulation is, however, short-term and self-defeating. In the current highly connected and open environment, a firm that systematically advertises for jobs but rejects all applicants will be identified and widely known. Such loss of credibility in the highly important and competitive labor market is quite costly.
This is what we call a feedback loop; it makes financial time series non-stationary and difficult to predict.
Let us know what you think in the comments below.
References
[1] Lev, Baruch Itamar and Wu, Xi, Identifying Overvalued Stocks with Corporate Job Postings (2022). https://ssrn.com/abstract=4112800
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