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."

Comments

This has already been happening

[Subliminalbits]

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