Artificial intelligence (AI) is all over the news these days and is described as a tool that will make our lives easier. As it trickles into many industries around the world, the financial industry is no exception. In a Bloomberg article written by Nir Kaissar, he describes how AI will impact the financial industry.
The main question for the financial industry is whether AI can and/or will do a better job than humans in forecasting markets and investment trends. Although AI may soon be able to decipher Federal Reserve (Fed) statements and analyze headlines for clues about where stocks are headed, it’s unlikely to do any better of a job than professionals working in the industry.
“There’s no predictive value in Fed statements or financial news. Fed statements don’t guarantee the future path of short-term interest rates, which mostly depend on inflation and the health of the labor market, neither of which anyone can reliably forecast, including the central bank.” – AI Won’t Beat the Market Any Better Than Wall Street written by Nir Kaissar.
Despite AI being able to analyze Fed statements and headlines for clues, it’s practically impossible to predict major global events, such as the Covid-19 Pandemic. The S&P 500 slumped 34% in 5 weeks, then proceeded to recover in the following 6 weeks. No one was prepared for this market event, not even AI could have predicted the sudden downturn and following recovery. AI software still has a very long way to go if expected to predict unforeseeable events in the future.
“Financial news isn’t any more useful. It’s not indicative of companies’ long-term prospects or even the near-term path of stocks and bonds. So why automate manual processes that have little or no predictive value?”- AI Won’t Beat the Market Any Better Than Wall Street written by Nir Kaissar.
In modest amounts, AI could be a hugely profitable and a useful tool for the financial industry. AI could be used to solve perplexing problems that humans cannot solve on their own. It’s stated that AI could possibly forecast inflation, interest rates and other economic measures and how those measures intersect with asset prices.
“AI might even discover previously unknown drivers of the economy and asset prices or find so-called anomalies in markets — opportunities to generate above-market returns without taking more risk — that investors have not yet spotted and exploited.” – AI Won’t Beat the Market Any Better Than Wall Street written by Nir Kaissar.
How many times have we heard that automation or technology is going to take over our jobs? As humans continue to advance, I believe we should not fear technology, but embrace it and use it to make our jobs easier; ultimately improving our quality of life. Besides, I believe there is no substitute for human intuition.
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Have a great weekend,
Tracey and Paige
Article written by Paige Marshall.
Edited and approved by Tracey Marshall.
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