Robot Investing by Quant Funds using AI Fails The Latest Test

Hedge funds that use artificial intelligence and similar quantitative tools to invest fared worse than other hedge funds in the latest market correction, according to this article. A firm that’s been tracking the funds since 2011 says it tracks only a small number of funds, but it appears the computer models were set to assume the calm markets of the last few years continued.

The degree to which quant funds can exacerbate selloffs has been hotly contested, with some managers arguing they are too small to spur such an impact. JPMorgan Chase & Co., however, suggests last month might be an exception, citing their torrid performance of late.

“In all, we find that AI funds, similar to CTAs, likely played a big role in February’s correction by being forced to de-risk given an unprecedented 7.3 percent loss over the past month,” strategists at the bank, headed by Nikolaos Panigirtzoglou, wrote in a Friday note. Adoption rates have also increased, making AI strategies more crowded, they said.