Tags: Software | Driven | Investment | Booming

Software-Driven Investment Booming

Tuesday, 27 Jul 2010 10:04 AM

An increasing number of investors are turning to artificial intelligence to make investment decisions — and programmers are trying to teach machines to learn from their mistakes.

The small hedge fund Rebellion Research, which has about $7 million in capital, has been using an AI program it developed to invest in stocks. So far, the program has outdone the Standard & Poor 500 index by an average of 10 percent per year since 2007.

"It's pretty clear that human beings aren't improving," Rebellion’s Spencer Greenberg, told The Wall Street Journal. "But computers and algorithms are only getting faster and more robust."

The program monitors about 30 factors that can affect a stock's performance, such as price-to-earnings ratios or interest rates.

Unlike the high-frequency funds that use artificial intelligence to aid rapid trading, Rebellion tends to hold stocks for long periods and doesn't short stocks, use leverage, or borrowed money, which can increase risks even as returns increase.

Reuters reports that correlation among the individual stocks in the S&P 500 has risen to its highest level in more than 20 years, according to research by Birinyi Associates reviewed in the Journal.

Birinyi Research Director Jeffrey Yale Rubin says heightened correlation is a result of indexing strategies, which reduce the dispersion of returns.

Such strategies are growing in popularity as investors increasingly trade in and out of the whole market using broad indices instead of choosing individual stocks.

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An increasing number of investors are turning to artificial intelligence to make investment decisions and programmers are trying to teach machines to learn from their mistakes. The small hedge fund Rebellion Research, which has about $7 million in capital, has been using...
Software,Driven,Investment,Booming
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2010-04-27
Tuesday, 27 Jul 2010 10:04 AM
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