The AI Book

CHAPTER 37Finding Order in the Chaos: Investment Selection Using AI

By Yaron Golgher¹, Dr Lipa Roitman² and Denis Khoronenko³

¹CEO, I Know First

²CTO, I Know First

³Analyst, I Know First

Every Wall Street success story is a combination of a whole variety of factors, but the difference between a successful investor and their peer biting the dust can often come down to one simple question: How do you pick your investment? Do you follow the trend and exit just before the bubble bursts? Do you crunch the numbers, meticulously identifying the companies that seem to be undervalued? Or do you just blindfold a monkey, Burton Malkiel-style, and let it have fun throwing darts at a stock page in a newspaper. While all these approaches have their own merits (except for the last one, perhaps), the recent rise of the artificial intelligence industry provides investors with new tools and means to navigate the changing tides of the market. Going through troves of data in real time, smart machines are capable of modelling and predicting the stock price dynamics. This, of course, assumes that markets are predictable, which goes against some of the investment theory – so let us discuss that first before delving into the exciting world of AIs.

Random Walk Through Efficient Markets: Are Stock Price Fluctuations Predictable?

One of the lines of thinking in the debate around investment asserts that the stock prices effectively follow a random walk, changing randomly and unpredictably. This hypothesis ...