AI Challenge for Hedge Fund Managers
The financial world is buzzing with the anticipation of artificial intelligence revolutionizing trading and investing. Hedge fund managers are racing to build the ultimate money machine – an AI that continuously beats the market through self-learning.
In a recent interview with Bloomberg Television, crypto analyst Justina Lee discussed the challenges that the Wall Street bigwigs face in their attempts to realize these ambitious aspirations. Indeed, hedge funds have rapidly integrated AI-driven efficiency enhancements. They deploy AI for research consolidation, code automation, and refining various operations that once consumed hours, if not days, of valuable time.
But the Holy Grail in finance is always to use machine learning to kind of predict markets and decide what to trade based on that,says the analyst.
This proved to be a colossal challenge. The main hurdle is adapting AI methodologies to the unique characteristics of financial data. Surprisingly, the public domain has much less financial data than collections of photos of cats or dogs. Producing new trading data isn't as straightforward as crafting an adorable pet image. Additionally, financial markets, particularly the emerging ones, are notoriously volatile, filled with “noise,” and susceptible to sudden shifts. Still, hedge funds are tirelessly working to fine-tune AI algorithms to fit the financial realm.
But can AI pick stocks more effectively than humans? Justina Lee leans towards a tentative “yes.”
Because so far, the track record of a lot of AI-powered hedge funds is not spectacular, but it's sort of roughly the same as a lot of human-run funds,she said.
The real value AI offers is efficiency. It can sift through vast amounts of data and discern insights that would take a human a much longer time to process. One of the compelling uses of AI in finance is Natural Language Processing (NLP). NLP tackles human speech, whether written or oral. The aim is to teach AI to perceive information in our everyday language and make sound inferences from it. Regarding hedge funds, they're harnessing NLP to assess tweets and news stories, transforming textual content into real-time trading signals.
