Artificial Intelligence in Finance

Preface

Will alpha eventually go to zero for every imaginable investment strategy? More fundamentally, is the day approaching when, thanks to so many smart people and smarter computers, financial markets really do become perfect, and we can just sit back, relax, and assume that all assets are priced correctly?

Robert Shiller (2015)

Artificial intelligence (AI) rose to become a key technology in the 2010s and is assumed to be the dominating technology in the 2020s. Spurred by technological innovations, algorithmic breakthroughs, availability of big data, and ever-increasing compute power, many industries are undergoing fundamental changes driven by AI.

While media and public attention mostly focus on breakthroughs in areas such as gaming and self-driving cars, AI has also become a major technological force in the financial industry. However, it is safe to say that AI in finance is still at a nascent stage—as compared, for example, to industries such as web search or social media.

This book sets out to cover a number of important aspects related to AI in finance. AI in finance is already a vast topic, and a single book needs to focus on selected aspects. Therefore, this book covers the basics first (see Part I and Part II). It then zooms in on discovering statistical inefficiencies in financial markets by the use of AI and, more specifically, neural networks (see Part III). Such inefficiencies—embodied by AI algorithms that successfully predict future market movements—are a prerequisite ...