Total botched work.

Stones

There is no denying that the hype surrounding artificial intelligence has been a real boom for the stock market, even if the whole thing is a bubble.

But how good is the AI ​​itself actually Choose Stocks? Two researchers, Gary N. Smith, a professor of economics at Pomona College, and Sam Wyatt, a student at the college and project manager at Pomona Consulting, conducted an analysis to find out.

Writing a piece for Scientific AmericanThey argue that “AI-powered investing is particularly interesting because it provides a quantifiable way to assess the capabilities of the technology.”

And their results, which still require peer review, suggest that these skills are lacking.

Smith and Wyatt examined all publicly available exchange-traded funds launched since October 2017 that relied either partially or fully on an AI system for their stock decisions – and the vast majority of them achieved worse than the S&P 500, an index of the 500 largest companies listed on the US stock exchange.

Significantly, more than half of these funds have now been closed.

Unfortunate investments

To illustrate, the S&P 500 is considered a measure of the health of the stock market. If it is doing well and your fund is not, you will not benefit from the winning streak.

One could therefore argue that of the 43 funds that partially used an AI system to support stock decisions, only ten Although the funds outperformed the S&P 500, there appear to be some serious technological flaws. Overall, the average annual return of the partially AI-driven funds was five percent lower than the index’s 12.4 percent.

But perhaps the humans involved in these cases have thwarted the AIs’ plans. How have fully AI-based funds without human intervention performed?

Even worse, as it turned out. All 11 underperformed the S&P 500, and six even managed to lose Money in a generally buoyant market. “Overall, the 11 fully AI-managed funds lost an average of 1.8 percent per year, while the S&P 500 gave investors an average annual return of 7.6 percent,” the researchers wrote. (Remember, anyone can invest in the S&P 500 if they’re looking for a lower-risk stock experience, which makes the case for these AI-managed funds extremely tenuous at this point.)

The technical flaw, Smith and Wyatt argue, is that AI can correlate data but cannot understand it.

“The Achilles heel of AI systems is that while they are unmatched at finding statistical patterns, they have no way of judging whether the patterns they find are plausible or meaningless,” they write. “Until AI algorithms understand what words mean and how they relate to the real world, they will continue to be unreliable in making important decisions, including investments.”

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