In the summer podcast series of the Dutch foundation Universiteit van Nederland, together with daily Dutch newspaper Het Financieele Dagblad, this question is posed to Patrick Verwijmeren, Professor of Corporate Finance at Erasmus School of Economics.
The stock market, of course, revolves around information. Do you know a little ahead of everyone else that a stock is going to rise? Then you buy low and sell at a profit. But what if everyone has that information at the same time? What if Artificial Intelligence (AI) predicts precisely which stock will skyrocket and which will plummet?
AI can help in gathering information
According to Professor Patrick Verwijmeren, AI can help in gathering information that is relevant for stock prices. For example, about the company itself, or about political or economic developments. ‘You're looking for information that is better than what's currently known. Where we are too slow, too emotional, or simply too limited in what we can know, AI can already rapidly search thousands of sources simultaneously, make connections, and respond within seconds.’
AI's predictive power depends entirely on the data it receives. The system can only learn patterns from available information. For example, satellite images proves useful, as satellite images of shopping malls allows AI to make predictions about the success of new products. Data also presents a significant bottleneck, as it’s not always clear which data AI uses to reach its conclusions. Verwijmeren: ‘In the past, research focused on which time series best correlated with US stock prices. And what was the outcome? The best predictor of US stock prices was butter production in Bangladesh. We, as humans, can, of course, understand that this makes no sense, that it's pure coincidence. But AI might just as well use this seemingly irrelevant information to try to predict stock prices.’
Stock market always remains a bit of a gamble
Patrick Verwijmeren sees the potential of AI but doesn't yet have AI trading for him. ‘Recent academic evidence shows that AI often beats analysts with its predictions, and AI will get even stronger over time. Yet, the best results are currently achieved when man and machine work together. And don’t forget, even with a supercomputer at your side, the stock market always remains a bit of a gamble.’
- More information
Listen to the podcast in question on FD Dagkoers. For questions, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, mobile: +31 6 53 641 846.
