Will artificial intelligence come to control financial markets? – PEOPLE Online

Let’s think about what our life was like before the internet appeared and how it is now. A lot changed, right? Well, the effect of the AI ​​can be much greater. Although there are dissenting voices about it.

In the financial field, Warren Buffett, the oracle of omahaHe doubts that artificial intelligence (AI) will ever replace human intelligence, be able to choose which stocks to buy, and can anticipate or anticipate market developments better than humans.

Asking ChatGPT himself if artificial intelligence will be able to predict the market, we get a very coherent answer: it can assist and help in certain predictions, such as short-term price predictions, but a complete, safe and long-range prediction seems somewhat beyond your capabilities.

A whole greater than its parts

It is not enough to know the individual parts to understand the system. In fact, financial markets can be understood as complex systems, made up of many interacting elements from which collective phenomena arise that cannot be deduced from the individual elements.

One of the fundamental characteristics of the markets is the absence of a central authority that orders them, since the elements of the system are the ones that organize themselves. Other complex systems (and which are extremely difficult to predict, especially in the long term) are the climate, an ecosystem or consciousness itself.

The markets (with prices as signals), generate new and continuous information that, taken together, cannot be known by a single individual (hence the failure of centrally planned socialist economic systems). Millions of variables interact in the markets in a very complex phenomenon that is extremely difficult to predict in the long term.

Furthermore, markets are chaotic: small changes in initial conditions can lead to large fluctuations. Not to mention the black swansunexpected events that produce far-reaching consequences and impacts (such as the coronavirus or the war in Ukraine in recent years).

short forecast

ChatGPT is being used to predict future market movements from news headlines, known as Yosentiment indicatorswhich are used to find out if investors are happy or not with the progress of the market and the economy, quantifying the emotions that are occurring in the people who intervene in the market. This is a useful tool for analyzing the market and making investment decisions..

The investment bank JP Morgan has developed an AI model that, based on the speeches of the Federal Reserve of the last 25 years, seeks to predict movements in the stock market.

It becomes clear that artificial intelligence, the big data and the machine learning already play an important role in financial markets. These technologies allow data analysis (news, benefits, economic reports) in real time to generate buy and sell orders in fractions of a second.

But don’t forget that AI is based on past and present data, and that markets are dynamic, continually changing and looking to the future. While raw data analysis is an optimal field of work for artificial intelligence, the human being contributes intuition, imagination, experience and vision of the future, thus complementing the analysis of the machine.

We must also take into account the quality of the data from which artificial intelligence feeds. If the data you use is not correct, your analysis will not be good. This is a major challenge since, as we know, biased or completely wrong content can be found on the internet.

speed and uncertainty

In 1999 the SEC (US Securities and Exchange Commission) authorized electronic trading. That same year, high-frequency trading began to operate (high frequency trading or HFT) that, through the use of algorithms and powerful computers, allows securities to be traded automatically.

With the HFT, a large number of trading operations can be carried out in fractions of a second. This helped the appearance of flash crashes: sudden and unexpected falls in a very short period, followed by a rapid recovery in the price of securities or assets in a market. This produces an increase in volatility and great uncertainty in the financial markets.

Increase technological complexity

It is clear that, in their evolution, financial markets adopt increasingly complex technological forms: the last step is being the application of AI. In any case, as we have seen, there are so many variables involved that it is very difficult for even artificial intelligence to predict long-term market movements.

The impact of artificial intelligence is going to be enormous, not only in financial markets, but also in many other aspects of life, hence the importance of anticipating and regulating its development. It is up to us to make the impact of this emerging technology beneficial for both humans and our planet.

This article was originally published on The Conversation

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