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FRM Part II · FRM Exam Part II · Advances in Artificial Intelligence: Implications for Capital Markets Activities

Which data quality concern is most specific to using alternative data, such as scraped web or social media content, in AI-driven investment models?

Alternative data often has inconsistent coverage, unstructured formats and unclear provenance, so models built on it can suffer from noise, bias, short histories and legal or reliability issues. It is not regulator-audited and does not guarantee long histories or freedom from survivorship bias.

  1. AInconsistent coverage, unstructured format and unclear provenance, which may cause noise, bias and legal or reliability issuesCorrect
  2. BThe data is always audited by regulators before use
  3. CThe data is guaranteed to be free of survivorship bias
  4. DThe data is always available with long histories across market cycles

Explanation

Alternative data is often unstructured, has uneven coverage, short history and uncertain provenance, creating noise, bias and potential legal issues. It is not regulator-audited, and it typically lacks long histories, so the other statements are incorrect.

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