Wall Street

Artificial Intelligence Gains Momentum

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Artificial intelligence has quickly evolved from science fiction to digital assistants such as Alexa and Siri learning about our daily lives. A.I. applications are interpreting MRIs and will soon be operating self-driving cars. In personal finance, many of us interact with chat boxes on bank web sites.  And in the investing world, robo-advisors are managing portfolios for retail investors.

“But we haven’t seen the penetration of AI within institutional finance,” said Richard Johnson, vice president of market structure and technology at Greenwich Associates on a recent webinar about the evolution of A.I. and current levels of adoption on Wall Street.

In an audience poll taken during the Greenwich webinar, “Artificial Intelligence: The Coming Disruption on Wall Street, “37.5% of attendees said that artificial intelligence would have the biggest impact on research, 34.7% trading, 23.6% compliance and 4.2% cited sales.

Among the key benefits of artificial intelligence is that it can analyze large volumes of structured and unstructured data more quickly than humans do, which can boost their productivity.

Large banks, hedge funds and traditional asset managers have been hiring data scientists to develop machine-learning algorithms that scan billions of data points, news articles, blogs, social media posts, and images.

“Machine learning cannot only find alternative data but also measure the value of satellite images, predict how much oil is in the ground or how many cars are in a parking lot,” noted Johnson.

One of the world’s biggest hedge funds, Man Group, has used machine-learning techniques to find new strategies, “from start to finish,” noted Johnson.  Man runs $43 billion of its $96 billion in total assets quantitatively, mainly through algorithms, operating 21.5 hours a day, from the open in Asia to the close in the U.S., reports CNBC.

But Man Group’s AHL quantitative investment unit is now allowing the models to learn from the data and trade completely on their own, reported CNBC. The firm’s Sandy Rattray, Man’s London-based chief investment officer, told CNBC that the strategy is earning higher returns than traditional quant methods. (Read More...)