As technology continues to permeate into every aspect of modern life, the stock exchange is becoming one of the next frontiers. While computers already handle most of the data flowing through this system, one element is still eluding our top machines — predicting financial markets.
In case you need a refresher, Watson is a highly advanced supercomputer that combines artificial intelligence and analytics software to make it capable of answering almost any question in the world. You may recall Watson going head to head with Jeopardy champ Ken Jennings several years ago and crushing him like a bug.
Now, IBM is turning Watson loose in the world of Exchange-Traded Funds (ETF) to see if it could answer the ultimate wealth management question — how is the market going to perform in the future?
But what are the hurdles facing this technological titan and why haven’t computers been used for predictive analysis before? One reason is that while it’s easy to look at past trends and data, it’s much more difficult to assign value and importance on any individual piece.
A human may see the value of a particular stock, but a computer can just tell you how it has performed in the past and how it ranks compared to other similar offerings. It doesn’t know how to determine the future value of it based on numbers alone. There still has to be a human element present to understand these intricacies and how they can affect the market.
IBM is working with Equbot, an ETF company that specializes in using AI for predictive purposes. The goal is to figure out which sets of data can crack the code and come up with an accurate model. With Watson, the group will feed both history of a particular stock as well as current economic news and trends and see if something useful pops up.
The key difference here is that the computer is analyzing not just stock data, but world news. For example, how will tensions between nuclear powers affect the market? What about a natural disaster? How is cryptocurrency going to disrupt current financial systems?
This kind of information could prove vital to ensuring success of Watson and other AI-based analysis systems.
So far, algorithmic-based financial predictions have had moderate success, but we’ll see what happens when we put a thinking computer on the case. Who knows? Robo advisory could become the new normal.
Could the stock market be the next Jeopardy! for Watson? We’ll soon find out.