Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Watson and trading in financial markets

Much has been written about IBM’s Watson defeating top rated contestants in a practice round of the US TV quiz game Jeopardy. Modelled Behaviour says “AI and singularity suddenly feel near enough to care about.” Nemo says “simply an incredible achievement, far beyond beating Kasparov at chess.” What is also interesting is how much the machine has progressed from its dismal performance less than a year ago.

I have been thinking about what it means for finance especially financial markets. Could it make markets more resilient? Running on a supercomputer, Watson needs several seconds to come to its conclusions. By the standards of high frequency trading (HFT), this is an eternity, but we know that markets are more resilient when it is populated with a diversity of traders operating at totally different time scales. Could it also lead to more algorithmic trading based on a wide variety of news sources and fundamentals, instead of trading based only on order flow and machine readable news?

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