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People + AI Research - Library - Google Design
Get practical insights from Google’s People + AI Research team on how to take a multidisciplinary and human-centered approach to designing with machine learning and AI. Inside, find articles and video on how ML is changing the way we build experiences and interact with the world.
research  design_research  artificial_intelligence 
3 days ago by shannon_mattern
Passive investing is storing up trouble
August 2, 2018 | Financial Times | by Megan Greene.

I was recently informed by the owner of an artificial intelligence fund that markets do not listen to economists any more. .....A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals. But just because some markets do not pay attention to economists, it does not mean economists should not pay attention to these markets........AI quant funds are not waiting on tenterhooks for analysis of every non-farm payrolls report, Fed press conference, Donald Trump tweet, or earnings report. Instead, they look for trading strategies that are succeeding and adopt those strategies until a better one comes along, regardless of the underlying fundamentals. But what happens when the strategy suddenly becomes to sell everything? Will the computers find the buyers they need?.......ETFs, often set up to mimic an index, have to buy more of equities rising in price, sending those stock prices even higher. ETFs similarly ignore fundamentals.....This creates a piling-on effect as funds buy more of these increasingly expensive stocks and less of the cheaper ones in their indices...Risks of a bubble arise when there is no regard for underlying fundamentals or price. It is reasonable to assume a sustained market correction would lead to stocks that were disproportionately bought because of ETFs and index funds being disproportionately sold.

But again, in a crisis will the ETF managers find liquid markets? ....Passive investors and quant funds could also threaten the economy by making markets vastly more complex, noisy and opaque. They send mixed signals to active investors about what the fair value of a stock is. That could cause a significant misallocation of capital.

The danger is exacerbated by the speed at which trading is now done. The average holding period for a security on the New York Stock Exchange has fallen from two months in 2008 to just under 20 seconds today.......Systemic failures, misallocation of capital and dried up liquidity could cause a bear market, dragging on growth when the economic backdrop is already lacklustre......So even though passive investors ignore economists, economists should pay attention to risks posed by the shift in market structure they represent....This is not to say that index funds, ETFs and AI quant funds are necessarily bad. But the real test will come when there is a sudden crisis followed by a sustained bear market.
active_investing  artificial_intelligence  bear_markets  economists  ETFs  index_funds  investing  liquidity  market_fundamentals  misallocations  passive_investing  piling_on  risks  systemic_failures  rules-based  bubbles  quantitative 
13 days ago by jerryking
How Big Data and AI Are Driving Business Innovation in 2018
2018 survey is that an overwhelming 97.2% of executives report that their companies are investing in building or launching big data and AI initiatives. Among surveyed executives, a growing consensus is emerging that AI and big data initiatives are becoming closely intertwined, with 76.5% of executives indicating that the proliferation and greater availability of data is empowering AI and cognitive initiatives within their organizations.
big_data  artificial_intelligence  mitsmr 
16 days ago by tom.reeder

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