Stock Picking Goes Bionic

The New York Times reports that on Wall Street, the days are numbered for humans.

Software in development could potentially respond automatically to almost anything; changes in weather forecasts on television news, shifting analyst sentiments or what a particular movie critic said about the new blockbuster.
“Right now, everyone basically has access to the same data,” said John Bates, a Progress Software executive. “To get an edge, we want to give investors the ability to immediately turn news into numbers. We want to automate what before required human analysis.”
But as these new techniques proliferate, some worry that promotion is outpacing reality. These techniques may be better for marketing than stock picking.
“Investment firms fall over themselves advertising their latest, most esoteric systems,” said Mr. Lo of M.I.T., who was asked by a $20 billion pension fund to design a neural network. He declined after discovering the investors had no real idea how such networks work.
“There are some pretty substantial misconceptions about what these things can and cannot do,” he said. “As with any black box, if you don’t know why it works, you won’t realize when it’s stopped working. Even a broken watch is right twice a day.”

Posted by on November 26th, 2006 at 10:56 am


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