Written by: Anthony Malakian
Published in: Waters Magazine
March 2, 2016

Machine Learning: Hype vs. Reality
Waters takes an in-depth look at advancements made in this field of artificial intelligence and where there’s still room for advancement.

Many firms want to attach their names to the machine-learning groundswell, but few are producing tangible results. Anthony Malakian looks at how machine learning and various AI techniques are helping capital markets firms, and where there is still more hype than reality.

Speaking at a Waters-hosted event in November, Lauren Crossett, director of business development at Rebellion Research, considered one of the leading AI quant funds in the US, said that even though errors are made, they have to trust the AI and not override it.

“We might look at all the other funds that sold out when something starts to go down and say, ‘Ok, well we know where the fork was in the road. Let’s see how it comes out,” Crossett said. “We pretty much depend on what the AI said. It’s not to say if we think there is something wrong with the data we’re not going to rerun the system. But we’re not going to say, ‘Hey, I have a good feeling about this, so let’s overweigh something.’ We’re not going to do that.”

Erez Katz, CEO of Lucena Research, which provides predictive analytics using machine-learning technology, adds that the benefit of these platforms is that it takes human emotion out of play, which can be beneficial when it comes to execution as opposed to research.

“Machine learning takes the human’s emotion out of the equation,” he says. “That’s very important because human psychology plays an important role in most investment decisions and it often does a disservice even to the most seasoned portfolio managers. Active investors, whether they admit it or not, often buy a stock for the wrong reasons and exit under duress due to their lack of confidence in their initial decision to enter. Having a scientific backing provides the statistical affirmation and confidence in a trade, but more importantly, it eliminates the emotional angle of the decision process.”

To read the full article, visit: Machine Learning: Hype vs. Reality