Will AI take over the stock market? Robotic stockbrokers are starting to predict changes in share prices better than humans

  • Japanese brokers are testing artificial intelligence to predict the market
  • Their algorithms has got its predictions correct 68 per cent of the time
  • Most human analysts can only get 48 per cent of their forecasts right
  • It has raised the prospect of AI computers taking over share dealing

The stock market is notoriously unpredictable – for those who can make the right calls, vast sums of money can be made, but get it wrong and the losses can be equally huge. Now some stockbrokers are hoping that artificial intelligence will tip the balance in their favour. Japanese researchers have developed a computer capable of predicting the rise and fall of the market correctly 68 per cent of the time.

It suggests learning algorithms, which assess huge volumes of data to predict stock prices and economic fortunes, could transform the markets.

While computer algorithms have been used in share trading for decades now, allowing transactions to be timed to a fraction of a second, the use of AI has been slow. Dr Junsuke Senoguchi, a senior equity strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo, however, has being testing a new robotic stockbroker. Every month, for four years it has produced a single simple prediction – whether the Nikkei 225 Stock Average index will be higher or lower in 30 days time. Dr Senoguchi told Bloomberg Business that the robot has been getting more and more accurate. He said: ‘Artificial intelligence gives you much better results than conventional statistics. ‘Sometimes the structure of the market changes greatly.
‘The ability to change the model when this happens is a big difference from previous approaches.’

According to Dr Senoguchi, since March 2012, his robotic stockbroker has been right about the changes in the market 32 times out of 47 – giving it a hit rate of 68 per cent.
Although this is still a relatively small number of tests, it exceeds the figure that would be expected by chance. Indeed, research compiled from market forecasters since 1998 by CXO Advisory Group revealed humans were only able to accurate predict the market direction 48 per cent of the time.

With a prediction hit rate of 68 per cent, the machine is already outperforming human stockbrokers, although the number of forecasts the computer has made are still small. Some experts believe artificial intelligence could transform how trades are made. Stock image of share prices on a computer pictured

Dr Senoguchi’s algorithm combines 92 economic indicators over multiple timeframes and uses sets of rules to eliminate those that it sees as being least predictive over the past 48 months.
It then uses this data to produce model to predict what will happen in the coming month. Each month it starts afresh and takes into account any changes.

However, the AI stockbroker is still far from being perfect. According to Bloomberg it utterly failed to predict the huge fall in share prices around the world that marred the start of 2016.
It said the period ending January 10 would see the Nikkei 225 rise. Instead it fell to one of its lowest levels on record.
Regardless, artificial intelligence experts have described the approach being taken by Dr Senoguchi as ‘extremely new’ and said the computer’s level of success was ‘pretty high’.

The AI stockbroker failed to forecast plunging markets at the start of 2016, sparked by massive falls in share prices on China’s stockmarket (pictured) which reverberated around the world