A technological advance can impact — even transform — the global economy let alone a particular sector. The steam engine in the first industrial revolution, electricity in the second, and internet technology in the third fundamentally changed human history. Today, big data and artificial intelligence (AI) have the same transformative potential. When it comes to big data and AI in investment management, some people anticipate a rosy future with various new sources of alpha. Others worry about the jobs that might be lost to machines through process automation. Regarding the new sources of alpha, developments in this fourth industrial revolution raise a series of critical questions. How investment professionals address them will go a long way in determining who will successfully adapt and who might be rendered obsolete. Frequently Asked Questions (FAQs) 1. By using big data and AI, can investment managers achieve competitive advantages in securities selection and asset allocation? It depends on the investment time horizon. With short-term high-frequency trading (HFT), for instance, investment opportunities — the short-term noise rather than economic added value or mis-pricing due to structured behavioural tendencies — could be arbitraged away. On the contrary, long-term investments, such as environmental, social, and governance (ESG)… Read full this story
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