Impact of Artificial Intelligence on Organizational Transformation. Группа авторов

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СКАЧАТЬ price and volume of stocks. AI has been a major tool to predict trends and also in managing investment portfolios and selecting good return generating stocks. While large companies have been making use of AI for years to mine huge amounts of data together with not only stock performance but also corporate commentary, social media trends, consumer behavior, credit card trends, etc., the advent and rise of AI-based technology have set international stock markets in a new age.

      Until recent times, stock market data and price movements were analyzed via quantitative analysis was but it was time-consuming and only a few could do it and extract meaningful information, so it was used only by a few major players like Goldman Sachs and J.P Morgan, which managed nearly 20% of its portfolios with AI. Now that AI is nearly everywhere and the barriers to entry have decreased, small-time brokers and startups have started looking to leverage this tech into building a new model for investors to pick stocks.

      Let us create an understanding as to what exactly is AI and how it is being used in trading and analyzing stocks, and some controversy surrounding AI’s mass acceptance.

2.6 Artificial Intelligence

      The simplest definition of AI was given by famous professor McCarthy (1950), dating back to the 1950s by Dartmouth professor Joseph McCarthy, which is a process of using software to mimic aspects of learning and decision-making so that a machine can be made to simulate it. Since the starting of AI, its applications have modified and process has scaled to accommodate growing technology. At present, modern world has stuck to the concept, AI is being used nearly everywhere:

       Google’s Map application uses AI to predict traffic patterns to offer the quickest route and also tells about the precise amount of traffic and congestion one would find after an hour or two on any required route.

       Online shopping at retailers like Amazon use AI to make price changes and product recommendations to meet customer’s demands.

       Uber and Lyft use AI to determine fair pricing based on peak usage.

       Banks use AI as part of their fraud protection and prevent identity theft.

       Credit card companies use AI to determine whether a customer is eligible for a credit increase.

       Every flight in the world uses AI-powered autopilot to steer the vehicle (humans only account for ~7 minutes of control, reserved for take-offs and landings).

       Spam filters on your email sort out behavior patterns of junk mail and scammer tactics.

       Plagiarism checks in professional and academic settings can quickly analyze papers for stolen or redundant content.

      The list goes on. So, if you think that AI is something new and has come up in recent years, then it is important that you know that it is an old concept which was there for many decades though not in the same shape as it has evolved over years. Aspects of AI have been refined in recent years which have made it smarter to the current status, with machine learning and deep learning being popular buzzwords.

Machine Learning means training a machine to perform a particular action by programming algorithms set by a programmer. This includes things like recognizing a particular any patter of expenditure made by a person by her credit card and then indentifying any inconsistency to trace fraud. As more algorithms are added and data accumulated, the AI becomes more precise and capable of processing data to make better-informed decisions.

      Deep Learning, which is almost like machine learning, is a process of training a machine to perform actions and become more precise over time. However, deep learning goes further, involving an approach that involves artificial neural networks—similar to how human brains learn patterns of behavior (for example, someone falls and you automatically extend your hand to help without any conscious thought). With researchers making new breakthrough in this concept every year, deep learning becomes a type of responsive intelligence that learns as it goes. Usually, deep learning enhances machine learning by being able to adapt to new data by itself, changing algorithms to create more favorable output. Of course, this requires considerable amounts of computing power and it has not been until recent years where humans have closed the gap to creating amore sophisticated and developed form of AI.

2.7 AI Stock Trading

      So, let us make an effort to understand how does AI apply to the stock markets and stock trading? For a technology which specializes into number crunching and analyze that data to predict the future, AI is a natural fit for the world of finance. In stock market every day, a lot of data is generated regarding lows, highs, volume of trade, etc., which is used by the analysts to predict the future movements of stocks. A combination of deep learning along with machine learning allows financial firms to analyze not only stock price fluctuations but also unstructured data that reveals patterns of behavior that may have not been perceptible by a human [13]. This paves way for a new level of accuracy in trading decisions that goes beyond traditional investing strategies. Of course, these are just some of the known usages of AI. Stock markets around the world have realized the application of AI and begun to shift their focus toward bringing in AI experts from Information Technology sector to the world of hard core finance and investment. This competitive uproar has led to companies to move forward and apply this technology in relation to real-world investing applications.

2.8 Algorithmic (Algo Trading) Trading

      Algorithmic Trading or Algo Trading refers to triggering trades on stock exchanges based on predefined criteria and without any human interference using computer programs and software [14]. Algorithmic Trading is normally defined as the use of computer algorithms to mechanically make certain orders, trading decisions, and manage those orders after compliance. While being a division of algorithmic trading, high-frequency trading involves buying and selling oodles of shares in a very small period of time like fractions of seconds. After so many frauds and downturns in stock market, the common agreement is that algorithmic trading is an unavoidable evolution of the trading process and markets all over the world have implemented various measures to provide a unhampered experience to investors. In the United States and other such developed stock markets, High-Frequency Algorithmic trading accounts for about 70% of trades in equities segment. In India, this percentage of trades done with the help of algorithmic trading to the total turnover has moved up to as much as 49.8%.

      In India, Algo Trading was introduced on April 3, 2008, when DMA (Direct Market Access) facility was made available to institutional clients by SEBI (Securities and Exchange Board of India). DMA facility was a platform which allowed brokers to provide their set up to clients and gave them direct right to use to the exchange trading system without any participation of a broker. To start with retail, clients were not given this facility; thus, only institutional clients could avail this service. But later, it was also given to retail-individual traders. It brought down the costs of trading for the institutional investors and also helped in improved execution by reducing the time spent in steering the order to the broker and issuing the necessary commands. But DMA had a negative effect on the brokerage business of stock brokers as investors both institutional and retail clients start accessing DMA services. To sustain the times, they started providing computerized software to the clients.

2.9 Conclusion

Since 1800s, Indian stock markets have come a long way from trading in the ring to complete computer-based trading to algorithmic trading. These have been years of complete change and cumulative improvement. Programs which were used by select few are now approachable to people at large creating more СКАЧАТЬ