Hedge Funds Artificial Intelligence
Hedge Funds Increasingly Relying on Artificial Intelligence
Hedge funds are turning more and more to the science of artificial intelligence to choose the best investment play. While traders sometimes repeat the same mistakes, these computers are trained to learn from errors and adapt so as not to make the same error in the future, thus improving its strategy.
With artificial intelligence, programmers don't just set up computers to make decisions in response to certain inputs. They attempt to enable the systems to learn from decisions, and adapt.
Most investors trying the approach are using “machine learning”, a branch of artificial intelligence in which a computer program analyses huge chunks of data and makes predictions about the future. It is used by tech companies such as Google, to match web searches with results, and NetFlix, to predict which movies users are likely to rent.
One upstart in the AI race on Wall Street is Rebellion Research, a tiny New York hedge fund with about $US7 million ($8m) in capital that has been using a machine-learning program it developed to invest in stocks.
Run by a small team of 20-something math and computer whizzes, Rebellion has a solid track record, topping the Standard & Poor's 500-stock index by an average of 10 per cent a year, after fees, since its 2007 launch and up to last June, according to people familiar with the fund. Source
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