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March 29, 2018

Stock Market Success Down To AI and Homework, Not Luck


Earlier this week, it was reported by CBNC financial that an in-depth working paper from Rice University found that investors made 1.5% more when researching stocks. With the average S&P 500 RoI only totalling 11.29%, that equates to a big extra chunk of money. Along with the advent of high technology, which has been accelerating every since the days of derivatives computers, stock market wins are starting to become more reliably powered by study rather than getting lucky.

Technology and trends centred around blockchain are galvanizing the market and providing undue value to previously low value stocks. As a result, a measure of predictability is welcomed.

Computer learning and making cash

Machine learning and doing your homework are, of course, not new things to the stock market. Thomas Petterfy, a Hungarian scientist, pioneered robots in the trading industry and in 2010 the USA sought his extradition on the basis of accused links to that year’s flash crash. However, artificial intelligence and it’s cousin, augmented reality, are starting to make head waves in the stock markets, with institutional investor BlackRock unveiling their new Monarch trading system and putting a big marker on the importance of computer-predicted and established trading. These computer systems are particularly adept at mapping trends in cyclical markets. The traditional commercial and personal banking industry, for example, has a market that undulates quite closely with the world economy. The result for these sophisticated computers is a more accurate outlook, which is invaluable when margins are tight.

Consultant technology systems

In addition to real-time market processing and trading, big business is teaming up to craft ‘consultant’ AI. Using the expertise of well-researched investors in conjunction with expert models, Japanese finance company Mizuho have collaborated with tech giant IBM to design and release a new system to provide comprehensive trading forecasts based on time-series logic. The result will be well researched, accurate forecasts to combat the gut feeling and market intuition of ‘old school’ established investors.

Getting ahead of the game

The ultimate goal that many of these schemes are working towards is getting ahead of the game. Being ahead of news releases is the holy grail, and the ongoing rampancy of insider trading on Wall Street - a study by Cambridge and Stanford reported by CNBC found that abuse of government regulation changes - is indicative of the value of fresh information. The crafty use of SEC filings to find news before it surfaces, and creative use of computers to accurately preempt and exploit trends, is the key to making a success in the modern stock market.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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