Wall Street Is Too Complex to Be Left to Humans
A paper claims that intricate investing models that only AI and machine learning can create outperform simpler ones. It’s right.
The humans will lose.
Photographer: Michael Nagle/Bloomberg
A paper from researchers at hedge fund AQR Capital Management and Yale University addresses one of the most important questions in finance: Will artificial intelligence and machine learning replace human researchers and traders?
In 44 pages of densely written theory and empirical results under the title “The Virtue of Complexity in Return Prediction,” Bryan Kelly, Semyon Malamud and Kangying Zhao claim that more complex models — far too complex for humans to process — outperform simpler models. As Bloomberg News reports, the backlash was swift, with at least six papers challenging the findings, which Kelly has subsequently defended.