Slashdot Mirror
Quant AI Picks Stocks Better Than Humans
Mr_Blank writes with this excerpt from an article at MIT's Technology Review:
"The ability to predict the stock market is, as any Wall Street quantitative trader (or quant) will tell you, a license to print money. So it should be of no small interest to anyone who likes money that a new system that works in a radically different way than previous automated trading schemes appears to be able to beat Wall Street's best quantitative mutual funds at their own game. It's called the Arizona Financial Text system, or AZFinText, and it works by ingesting large quantities of financial news stories (in initial tests, from Yahoo Finance) along with minute-by-minute stock price data, and then using the former to figure out how to predict the latter. Then it buys, or shorts, every stock it believes will move more than 1% of its current price in the next 20 minutes — and it never holds a stock for longer."
It's been said before, and I'll say it again. You should ban anyone buying a stock and then selling it within timeframe x (where is 1 week/6 months/1 year). Anything to cut down on the insane bullshit.
and it never holds a stock for longer
So this is really an automated gambling system rather than a tool for investment.
I am becoming gerund, destroyer of verbs.
This type of trading provides liquidity and makes a market.
It doesn't. I don't see anybody claiming it does. It makes money for those who created the system. Might not be the most noble goal, but it's sure as hell a sensible one to go for.
And all at the minor expense of of the occasional slight global economic meltdown. Such a great deal, isn't it?
The problem is that if it's too high volume, it both makes and is the market. If everyone's running a statistical model that says that Event X will cause a stock price increase, the stock price will increase, even if it wouldn't have otherwise.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
We do not need to remove them. Regulations keep the playing field more even. Without them we'd see most of the wealth of this country flow up to a select few.
Blar.
I assume you've never heard of "dividends." They're what used to drive investments prior to computers. Back in the day people would rarely buy and sell on a time period of less than a couple years, because it was somewhat difficult to get in and out efficiently. Hell, I remember even in the 80s, you'd typically be restricted to only checking prices once a day. Well, unless you were a broker or were glued to the TV.
What that does is decrease the cut that the matchmakers get for brokering the deal. However it doesn't harm the market, there are still stocks, most notably Berkshire Hathaway, which are barely liquid and they do just fine. You just Don't expect to trade it immediately. I know it's terrible to possibly have to wait an hour or two, but it's worth it if it cuts these jack ass jackal cheats out of the picture.
And this extra liquidity is a benefit? I could argue that even without these automated bots there is no shortage of liquidity in modern markets.
One of the greatest benefits of liquidity is supposed to be more stable price formation. Unfortunately I cannot believe in the current system where on a bad day swings can be over 50% down and back up, and on a good day stocks bounce around in 5-10% bracket. No company value can move that much during one day, it's all speculation and volatility of these systems.
Stock market needs to go back to the basics where you own a company rather than zero sum lottery tickets.
There is an alternatively and it just might address the capital gains issue. We tax capital gains at the same rate no matter how long you keep the investment. Why not have a sliding scale that bases the capital gains tax rate on how long you hold on to the stock. Suggested tax rates. At the same time, investors are always crying that capital rates are too high. With this scheme, they would be in control of what rate their investments would be taxed at.
1 second ... 99% ... 95% ... 90% ... 75% ... 50% ... 35% ... 20% ... 10%
1 minute
1 hour
1 day
1 week
1 month
1 year
5+ years
You could even put the tax rates on a continuous scale that negates any advantage to holding on to an investment just long enough to meet a benchmark. Yes, short term investments would be taxed at a confiscatory rate, but that is the general idea. We want to slow down the rate of trading. At the same time, investors are always crying that the capital gains rate is too high. This would put them in control of what tax rate their investments is taxed at. All they need to do is to hold on to investments long enough. This scheme would also favor the little guy who probably holds on to investments for a longer time.
If this program worked at all, I'm curious why Schumaker and Chen did not keep this to themselves and just retire to the level of Sergy and Brin. With a small wad of cash to get the ball rolling, it would just snow ball into ever-increasing cash reserves.
They could start a lot of business ventures from the 1/2 acre deck of the 800' mega yacht anchored in the Med, all while their secret stock market money machine worked its wonders.
Ah, right. Web Bot makes a (more or less) triumphant return, does it?
Well, a couple of cherry-picked results (you know, such as "data from five non-consecutive weeks in 2005") could net a snakeoil salesman a couple of million, so I guess it does what it was written for.
I've seen similar things about people choosing stock at random and performing better than your average stock fonds. Some of them, anyway, pretty much what you'd expect by chance - the pros don't have a magic wand to show them what stocks will rise, they gamble just as much as ordinary folk who stumble into the stock market. The difference is that they're not gambling with their own money, and they get paid handsomely for it. After all, "professional" only means that you're getting paid for it, not that you're any good at what you do.
As such, color me unimpressed if someone finds a hand-picked dataset for a bayes filter that does better than a professional trader.
and this development helps humanity, how?
The only possible benefit I see is to help to bring the end to this fiasco that is Wall Street.
Slashdot even covered United Airlines stock dropping from $12 to $3...
You call this "dangerous"? I would love it if one of my stocks dropped 75%, because I would be able to buy more shares at a great price!
There seems to be a lot of people here whining about what would happen if 95% of the market participants were day traders and only 5% were long term investors. Guess what? Those long term investors would love it, because the day traders would create endless opportunities for the long term investors to buy low and sell high.
What I really meant to get across was that because of the volumes that these systems need to trade in to make money, they have the capacity to make very large impacts on the market if they misbehave. Because of this, we should at the very least be aware of them and the dangers that they pose when they misbehave.
When the trucker moves the widget from the factory to the store, he changes its value by moving it from the place of creation to the place of use. Any student of economics knows that major economic leaps have taken place when the costs of this have reduced - from carts to canals, from canals to railways. This is because there are real costs involved; you can regard the energy and investment in moving goods as being exactly as much part of their manufacture as pressing or welding. But the electronic transfer of the stock market transfers ownership at negligible cost and therefore adds no value, so any price increase is simple inflation.
This is exactly what has happened to the economy: house prices inflated, share prices inflated, but the actual value of the underlying assets barely increased. We are now trying to reduce a debt which is purely the difference between perceived value (what people will buy things for) and their inflated value.
The fact that people like you believe the nonsense you have posted is the underlying fact behind the financial crisis.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
Originally, the stock market was not a form of gambling but a form of insurance. Investors in trade voyages in the days of sail and marine anarchy expected that some ships would not come back, therefore they wanted to be able to invest in multiple voyages. Joint stock companies formed to carry out a voyage would then sell shares, spreading the risk. (They did this at Lloyd's Coffee House in London.) The sale of shares meant that the money they had invested in the voyage came back to them before the voyage was complete, thus creating liquidity (i.e. the joint stock owners had cash again to invest in new voyages before the first ones returned).
Short term trading is purely gambling, but does not necessarily create any more liquidity than long term investment. Hence my observation that your comment is bogus.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
Microsoft's monopoly appears to have become limited to home and small business PC operating systems. What is Microsoft's market share in video game consoles? In MP3 players? In smartphone operating systems? In server operating systems? In web browsers, even among users of its own desktop operating system? The widely publicized antitrust lawsuit covered the use of a desktop monopoly to build a web browser monopoly. But now, Internet Explorer is right on the verge of losing its majority, and though it will still enjoy a plurality for the foreseeable future, plurality without majority implies lack of monopoly.
Close, but no cigar.
That 0.01 is NOT taken from somewhere else. It is "generated" but generated from nothing. It is the air in the bubble and then it bursts. We had this long before, the great depression was build on it. EVERYONE speculated. And LOTS of money was being generated it seemed, but where did it come from? Nowhere.
You might have heard of the phrase "your ship coming in". Where does it come from?
At least in part from the old dutch practice of funding the sailing of a cargo ship by writing out shares. Anyone could fund some money to build/outfit a ship and would in turn get a share of the profits it would generate on its voyage. This was a long term investment as a voyage to the far east could take 2 or more years. It was a also risky, you could build a bridge to the far east out of all the lost ships (oh okay, you can't but it sounds dramatic).
Now say that I took a share of 100 florins (a shitload of money but a nice round number to work with). I watch the ship sail and hope that it will come back in 2 years time with a fat cargo of spices that will trade for a fortune. My ship will have come in. Or it will sink.
BUT this ship does not exist in a void. It will encounter other vessels. Say that six months out it has crossed the horn of Africa. A seriously risky part of the journey. It comes across another ship making its way back and this ship reports what has happened to Holland. What happens to my share? Well nothing EXCEPT that SOMEONE might be willing to pay me more then 100 florins for it because the risk of it failing has now been reduced. My share has increased in POTENTIAL value. Someone with 200 florins might buy my share. I get a lower but certain profit while that person will gain less of a profit IF the ship comes in but has a higher chance of it then I did.
Other factors can add or substract from this. Say that it has been a calm year at sea and I get news that dozens of ships are making their way back. The price of spices will fall. Less risk of no return but less profit. Or say that nobody has yet reported on my ship at all. Risk has sky rocketed that it has sunk and my share is without value. Might I sell it lower?
THAT is stock market speculation. Betting on the POTENTIAL value of something. The problem is NOT with the speculation itself. The problem is when the speculation starts to be based on nothing. Those ships need to build, to be sailing, to be buying and selling cargo in order for there to be anything to speculate on. And that seems to get forgotten.
The speculation is no longer about the chances of the ship making it with a good cargo but on the speculation itself. Speculators no longer follow the shipping news but share prices themselves.
Take the recent price drop of BP shares. Why? Because of the oil spill? The company makes 60+ million profit PER DAY! The cost of the oil spill are spare change. Yes it will hurt their bottom line a bit but it is really just the cost of doing business. There should be no selling going on because the company is at no risk. Without speculators, there would be no selling going on. No long-term investor would have a reaosn to sell. Not buy perhaps but not sell since selling when a stock is going down means you are loosing money. Only the short term speculators have to sell because they can't afford to simply wait out their investment and need their money now.
We have allowed the stock market and the banks to turn themselves into "THE economy". A bank should be a service provider that real business makes use of. The same a law firm or cleaning company. Instead they have come to think of themselves as the most important part, the very engine of the economy. It is silly.
Imagine this. A justice system is part of civilization right? But when you consider the justice system to BE civilization, I think you would not like the results.
Don't confuse the means with the end. The tool with the goal.
There is nothing wrong with speculation, there is something wrong with
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
Ditto. There was talk a while back of charging $0.25 a share per transaction. Doing so would discourage flipping stocks just because it rose ten cents.
I also like the idea of dropping capital gains taxes on stocks held longer than a couple of years. Do that, and you encourage long-term investment in worthwhile companies.
Better yet, do both.
Any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so.