Will AI takeover our financial industry or create a continues perfect efficient market?

My interest in this 21^st century era is technology on how it influences the financial and banking industry in such a way. One of which is Artificial Intelligence or AI for short, it is beyond my intellectual capabilities to understand how AI is created and works, but basically is based on trial and error, where the AI continuously learn from each perspective movements and mistakes to do better in the next phase and a complete advance AI is basically an android/ program with high knowledge and technological capability followed by having human emotions and understanding of life and death.

Since I am also interested in finance and securities trading, I will interrelate the aspect of AI with the efficient market hypothesis which define that all information provided internally or externally from the business impact asset prices to go up if there’s good news and go down if there’s bad news.

Nowadays we use computers, software’s and algorithms to formulate the forecast of stock prices and numerical data in finance, such as Bank of America recently invest $3 billion on technologies including AI to improve its banking system, which resulted to a $6.8 billion profits and increase 4% in share value. The institutions created Erica which is the AI use to assist high number of customers through the banks application on searching historical transactions, trade finance, account transactions, bills and scheduling payments, informing customer regarding the knowledge of personal and corporate finance, monitor credit and debit card status and new banking rewards/ promotions.

This is a huge first step of using AI in the banking sector, now imagine in the future, our finances, securities trading and calculations is done by Artificial Intelligent! Some people say it would be great, our finance can be operated by an entity that follow our directions; transferring money would be fast and easy, we do not need complex formula to be use in a computer program, because the AI will do that job for us and a business may grow because information can be efficiently distributed to everyone that uses AI.

However, Bill Gates, Elon Musk and Stephen Hawking states that AI is dangerous and can takeover humanity! In finance perspective is claiming that our world is run by money, and imagine those money is controlled not by humans but by high intellectual program or AI, which could be devastating since the AI can manipulate and exploit our digital money.

I don’t actually agree with them because, personally, AI is a beneficial tool to develop our economy and financial enhancement; with a proper tools and engineer to create AI to operate under human control, it may help us and develop our life style. With proper operating AI with a true human characteristic to help people, it can achieve satisfaction, such as in financial industry we need AI to make simple formulas, international collaboration, enable simple trade finance, and helping providing information to all people easily thus proper decision making from the investor can be rational which an efficient market can be achieved. 

Fun fact: AI in Hollywood movies, novels and comics are illusion (science fiction) to misdirect the audience and provide obscured purpose such as an AI objective is to manipulate and exploit humans!

I imagine a world with AI and people that has an application to use the AI for business activities, for example an investor whom to invest in a company, and the AI will perform all operation activities such as informing the investors by the App, analysing financial and operational performance of the company, economical change and other microeconomic and macroeconomic events, to only provide a wide information by the App. This will be effective and the investor will gain the information fast to make decision, such as the AI give good news the investor will invest again thus share price increases, or if there is bad news the investor will sell the share, thus share price decrease, we call this an instantaneous information distribution that will achieve an efficient market with a continues semi strong form efficiency.

To be honest, I’m not an expert in engineering, technology and AI, however, imagine that as an investor with high amount of financial and physical investment, it is difficult to manage those investment and avoid risks. With AI, the program will inform the investor regarding events domestically and internationally including economic and political change, such as a default case in investment of bonds informed by the AI caused by economic instability, the investor may immediately sell the bond or invest on Credit Default Swaps to prevent the losses.

Furthermore, it will be easy for the investor to gain information and perform calculation. In fact, an investor usually will calculate Derivatives, Cost Capital and Portfolio Returns and Risk manually by using these formulas:

Confusing isn’t it? But with AI we do not need to use these formula’s all the time, because AI will give an automatic result!

In summary, managing investment with many assets and deciding what to do next is highly difficult manually, even for me an undergraduate student with skill, knowledge and experience still requires development with the interest of investing in the stock exchange.

But with the assistance of AI the process is fast and the AI may provide fast solutions and recommendation to counter losses and achieve profit/ wealth maximization, hence it is the investor choice what to perform next and not the AI controlling the investors decision and activities, as the AI purpose to just informed the investor. With all of those provided, it is at highest degree of information distribution leading to sufficient decision making to buy or sell securities and other investment types, thus it will achieve a perfect efficient friction-less market.