Machine learning can help money managers time markets, build portfolios, and manage risk
By Michael Maiello – It’s been two decades since IBM’s Deep Blue beat chess champion Garry Kasparov, and computers have become even smarter. Machines can now understand text, recognize voices, classify images, and beat humans in Go, a board game more complicated than chess, and perhaps the most complicated in existence.
And research suggests today’s computers can also predict asset returns with an unprecedented accuracy.
Yale University’s Bryan T. Kelly, Chicago Booth’s Dacheng Xiu, and Booth PhD candidate Shihao Gu investigated 30,000 individual stocks that traded between 1957 and 2016, examining hundreds of possibly predictive signals using several techniques of machine learning, a form of artificial intelligence. They conclude that ML had significant advantages over conventional analysis in this challenging task.
ML uses statistical techniques to give computers abilities that mimic and sometimes exceed human learning. The idea is that computers will be able to build on solutions to previous problems to eventually tackle issues they weren’t explicitly programmed to take on.
“At the broadest level, we find that machine learning offers an improved description of asset price behavior relative to traditional methods,” the researchers write, suggesting that ML could become the engine of effective portfolio management, able to predict asset-price movements better than human managers. more>
Posted in Business, Economy, Education, How to, Net, Technology
Tagged Business improvement, Capital, Chicago Booth, Internet, Machine learning, Skills
How local productivity growth affects workers near and far
One city’s boom can be felt across a nation
Chicago Booth – When big cities experience an economic boom, you expect an upsurge in wages and growth in those areas. But there’s some nuance: according to Chicago Booth’s Richard Hornbeck and University of California at Berkeley’s Enrico Moretti, one area’s surge particularly benefits low-skilled workers locally—and high-skilled workers elsewhere.
Using total factor productivity (TFP) as a measure of local productivity growth, Hornbeck Amount and Moretti analyzed two decades of data from major US cities to quantify the direct effects on people living in booming cities and the indirect effects on people elsewhere. Allowing for trade-offs between salary and cost-of-living increases, as well as unequal distribution of benefits across different groups, the researchers find that low-skilled workers gained the most from local productivity growth.
But gains extended further afield: a boom in San Diego or Los Angeles, say, was also felt in other cities. And high-skilled workers gained more from productivity growth in other cities. more>
Posted in Business, Economy, Education, Healthcare, How to, Science, Technology
Tagged Business improvement, Chicago Booth, Economic development, Finance, Health, Insurance
Class action lawsuits hit innovative companies the hardest
By Alex Verkhivker – Corporate America has long complained that many class action suits are frivolous and an unfair tax on business. Lawyers have a financial incentive to file meritless suits because companies are often willing to settle—even when allegations are false—to save time, money, and public image. Lawmakers in Congress have wrestled with this issue for years without resolution.
But research suggests more reason to address it: the costs of such litigation weigh disproportionately on the most innovative US corporations, according to Chicago Booth’s Elisabeth Kempf and Tilburg University’s Oliver Spalt. Using data on more than 40,000 lawsuits filed between 1996 and 2011 against 6,111 companies, the researchers find that frivolous lawsuits tended to focus on highly innovative businesses, which represented juicy targets—and cost the average company in this group $1.1 million a year, or about 4 percent of annual profit gains. more>
Posted in Business, Economic development, Economy, Education, History, Media, Science, Technology
Tagged Business improvement, Capital, Chicago Booth, Innovation, Lawsuit, Patents, Technology