ROLE OF ARTIFICIAL INTELLIGENCE IN THE MARKET PREDICTION ALGORITHMS : BY SOWJANYA S

Introduction- Market Prediction in Stock exchange involves determination of future value of the Company’s stocks or shares or any other instrument traded in the stock exchange. In a nutshell, it is predicting the unpredictable. This stock market prediction is determined based on the historical records of stock values and their respective fluctuations in the market. This becomes arduous because stock market is a complex system wherein myriad humans, machines and algorithms operate.  Initially Human resource and Statistical tools were used as measures for market prediction. With the advancement in Technology Artificial Intelligence has also, started to be used in market predictions.  The substance in using market prediction algorithms is for the investors to make better decisions. “Artificial intelligence techniques have the ability to take into consideration financial system complexities and they are used as financial time series forecasting tools[1].”

Artificial Intelligence-The NITI Aayog’s discussion Paper on National Strategy for Artificial intelligence elucidates- “Artificial Intelligence (AI) is poised to disrupt our world. With intelligent machines enabling high-level cognitive processes like thinking, perceiving, learning, problem solving and decision making, coupled with advances in data collection and aggregation, analytics and computer processing power, AI presents opportunities to complement and supplement human intelligence and enrich the way people live and work.[2]”

To illustrate the inordinate capability of these machines; ‘the International Business Machines Corporation, United States had developed the first artificially intelligent system to debate with humans.[3]’  Therefore it is self explanatory that the artificial intelligence tools have more impact in Stock market, where involvement of data processing is high.

 

Merits of Artificial Intelligence- Artificial Intelligence replace humans, thus reducing laborious work done by humans. ‘Artificial intelligence has the ability perform cognitive tasks like thinking, perceiving, learning, problem solving and decision making[4].’ These artificial Intelligence algorithms are economically feasible and they wide scope of usage. Artificial intelligence also has high pace, efficient way of managing records and data, ands provides logical conclusions. It is also process data at an incredible speed which is impossible to humans. CNN Business reported that ‘hedge funds use Artificial Intelligence to decipher 300 million data points in the New York Stock Exchange's opening hour of trading alone[5].’ It also gives personalised customer experience. For example CNN business also reported that “Citi Private Bank has deployed machine learning to help financial advisors answer a question they're frequently asked: What are other investors doing with their money? By using technology, the bank can anonymously share portfolio moves being made by clients all over the planet[6].” Another important blessing of Artificial Intelligence is that it lacks emotions, bias and sentiments.

 

Can Artificial Intelligence solve the complexicities of Stock Market?

The straightjacket answer for this is No. This is because of the following reasons.

·                 The Artificial Intelligence is based in recorded data or history. The machines predict the fluctuations in the market and suggest the investors in decision making. But, this whole process is based on recorded history. Artificial Intelligence lacks future fundamentals of market.

·                 Artificial intelligence works on a primary presumption that the market is static. That is, the market transactions will flow in the same manner as in the past or in a different permutation of the same. But market is competitive, it has new entrants every day or precisely every minute with different competitive strategies, technical advancements, and capabilities.

·                 Artificial Intelligence gives the probability of probability.  This system does multiplication of probability of inputs. This will never produce accurate results and it providing the correct decision to the investor is miniscule.

·                 The Stock Market works in real life scenarios. But Artificial intelligence lacks real life settings. There are innumerable factors casting an effect on an investment. This includes economic factors, technical factors, and even sentimental factors.

·                 Artificial Intelligence has similar set of human skills like ‘perceiving, problem solving, decision making etc,’ yet it is not adequate to solve the complexicities of the Stock Market. The Stock Market is a complex system encompassing various interactions.

 

Conclusion- Artificial Intelligence had slowly started becoming a part of human life in the era of competition. As Max Tegmark, a Swedish- American Physicist said “Everything we love about civilization is a product of intelligence, so amplifying our human intelligence with artificial intelligence has the potential of helping civilization flourish like never before – as long as we manage to keep the technology beneficial.” Therefore, in the stock market predictions also a culmination might cast an amplifying effect.

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[1] Lufuno Ronald Marwala , Forecasting the Stock Market Index Using Artificial Intelligence Techniques, (Aug.15,2020, 1.15 am), https://core.ac.uk/download/pdf/39667613.pdf. 

[2] Discussion Paper National Strategy for Artificial Intelligence, (Aug.12,2020, 11.58 pm) https://niti.gov.in/writereaddata/files/document_publication/NationalStrategy-for-AI-Discussion-Paper.pdf.

[3] Rachel Metz, IBM's fast-talking AI machine just lost to a human champion in a live debate,

(Aug.15,2020, 1.15 am), https://edition.cnn.com/2019/02/11/tech/ai-versus-human-ibm-debate/index.html.

[4] Discussion Paper National Strategy for Artificial Intelligence, (Aug.12,2020, 11.58 pm) https://niti.gov.in/writereaddata/files/document_publication/NationalStrategy-for-AI-Discussion-Paper.pdf.

[5] Matt Egan, How elite investors use artificial intelligence and machine learning to gain an edge, (Aug.14,2020, 10.50 pm), https://edition.cnn.com/2019/02/17/investing/artificial-intelligence-investors-machine-learning/index.html.

[6] Id.