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."
This type of day-trading provides absolutely no value to the economy and should be regulated to death. Also, I have a hard time believing it would work in the long term, as the news is a lagging indicator 90+% of the time. It might work for shorting in that respect... but even that would be too late and high risk.
All these quant systems seem to do is increase volatility at the expense of the market establishing a general direction.
I'm all for an IRS withholding of 1% on sales of assets held less than a week, and I am a fairly active trader.
Ars Technica wrote an interesting article about this almost a year ago. What is happening now isn't anything all that new. As several people have already mentioned, yes this is dangerous because these tools trade in extremely large sums. Slashdot even covered United Airlines stock dropping from $12 to $3 when the news crawler for one of these tools thought an old story was new and the tool proceeded to dump its entire United holdings causing a massive sell off by other investors. http://arstechnica.com/tech-policy/news/2009/07/-it-sounds-like-something.ars http://tech.slashdot.org/tech/08/09/10/203233.shtml
The free market is better than anything else ...
Exactly; especially when taxpayers worldwide are free to pay billions to revive banks and companies are free to take shortcuts every way they want (if things get really bad, there is always chapter 11).
CC.
TaijiQuan (Huang, 5 loosenings)
I don't think it does much for market irrationality. It does provide liquidity, though, which is good in reasonable amounts: means that if you want to buy or sell a stock right now, you don't have to wait for another long-term investor who wants to make the opposite transaction, but can buy from or sell to one of these people who are always churning their holdings.
It can be a problem if this sort of statistical-trading volume swamps the "real" trading, though. Ideally an exchange is supposed to send price signals that reflect some sort of external supply and demand, but if, say, only 5% of the market participants are normal market participants, and 95% are trading with 20-minute horizons based on statistical models, you've got a weird feedback-loop market that reacts mostly to itself.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Well, if the stock exchange is used as a casino, maybe they should use the same rule casinos use: If you win too much, you are not allowed to continue playing.
The Tao of math: The numbers you can count are not the real numbers.
Without them we'd see most of the wealth of this country flow up to a select few.
This happened long ago. Anybody remember Mr. Gates or any other CEO and Golden Parachutes and Bail Outs and Bonusess. Most of the wealth of this country is already in the hands of the few.
Better yet, tax the earnings as gambling winnings, not capital gains. Unless they're actually investing (taking significant risks with capital) in the real economy, I don't see why we should reward them with a tax rate below normal income taxes from sweat-of-the-brow work.
...charge a normal goods sales tax on the transaction. Why should stock sales be different from selling anything else? That will slam the kabosh on these fast computer trades.
In case you hadn't noticed, Keynesian economics has been disproven many times over. If I were you, I would start paying attention to those of the Austrian school, who predicted, clearly, publicly, and well in advance -- you can find old videos of Peter Schiff and Ron Paul on YouTube if you need convincing -- just exactly the economic situation we have seen this last year or two. In fact, there is a very good compilation, called "Peter Schiff Was Right", showing clips from TV shows a few years ago in which Peter Schiff disagrees with the "experts" on the economy. They even laughed at him. But as it turned out he was exactly right, and the others were dead wrong. This is no coincidence: he (and Paul, and others of the Austrian school) explained not only what was going to happen but also why. It's all right there for everybody to see.
How much is "Peter Schiff Was Right" related to the prophesies of Nostradamus? He predicted the market crash, etc years ago, but the longer you stretch out your claims, the more likely they are to be "proven correct"...especially if they are vague to begin with (were his claims vague?). I can claim now that the "recovery" we are in is not real and that the market is due for another crash and be proven right eventually...might take another 20 years though. I also "predicted" the market crash back in 2006/2007, but didn't have any particular media outlet or personal conviction for it to be noted. I'm thinking he was the contrarian naysayer that popped up at just the right time to be proven correct...I'm sure you can find his analogue from the early 90's, except nobody remembers him because he was not "proven correct".