Artificial Intelligence (AI) has become a popular topic over recent years, even more so in the last couple months. The main reason for this surge of interest in AI was the introduction of ChatGPT in 2022. ChatGPT is an AI chat that allows users to enter prompts. The AI can then respond or perform the task written. With ChatGPT gaining popularity, many people have been using the site to generate creative ideas, compose essays, or even have an intellectual conversation.
Although ChatGPT has taken off, AI has been around for years. For example, in 1997 a machine named ‘Deep Blue’ was created and ended up beating a chess master in a game of chess for the very first time.
AI is more than just ChatGPT. AI is in everything around us, in many ways. For example, if you have used a mapping app on your phone that estimates how long it will take you to arrive at your destination, or your texting app has made grammar suggestions for your writing, you have used and been in contact with AI.
The big question now regarding AI and Finance is, can AI be used to beat the markets?
The simple answer? No.
The way AI functions is that it uses the information available to form its ideas and conservations. Since AI operates on the available information, it does not know anything that anyone else could not find out by looking it up on the internet.
The Efficient Market Hypothesis is a financial hypothesis that states that all share prices reflect all available information out there. Therefore, any information that you or I know, or that AI knows, is already used to make up the current market price.
This means that AI does not have any advantage over regular investors.
In addition, AI is only good at predicting consistent, regular patterns. Estimating your arrival time? AI can do this because it is predictable. Traffic, the time you leave, and the available routes to work are usually the same every day.
Markets are not predictable. If they were, everyone would be rich. Because of this, AI cannot ‘beat’ the market. It only knows what humans and numbers from documents give it. It cannot predict the volatility that is a daily part of the stock markets.
If we can’t use AI to beat the markets, what can AI help with?
AI can help people make their businesses or personal lives more efficient by processing data at a much faster rate. AI can process large amounts of data and simplify it much more efficiently than an Advisor or Fund Manager could.
The best use of AI is when integrated with the human mind.
