Can Machines Learn Finance?
While the concept of Machine Learning may be widespread in many industries and environments, its role in finance has not yet been concretely defined. Asset managers have benefitted from certain Machine Learning principles, but in some areas the existing research has only scratched the surface.
Finance poses unique challenges even for the most powerful Machine Learning programs, but the use of these tools could potentially improve portfolios. For example, managers could leverage Machine Learning to measure the state of the economy, subsequently adjusting portfolio positioning, model interpretation or risk management.
To provide clarity, we highlight some key differentiators between financial Machine Learning and typical computer programming and define commonly-used terms in the space.
In this video introduction, AQR's Head of Machine Learning Bryan Kelly explains what machine learning is and how it's being used in finance.
Machine Learning’s “enormous success” refers to its growth in the industry, not any specific success of investment returns.
There can be no assurance that any investment strategy will be successful.
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Past performance does not predict future returns.
Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The MSCI China A Net Total Return USD Index captures large and mid-cap representation across China securities listed on the Shanghai and Shenzhen exchanges. The index covers only those securities that are accessible through "Stock Connect". The index is designed for international investors and is calculated using China A Stock Connect listings based on the offshore RMB exchange rate (CNH).
The ICE BofAML 3-Month U.S. Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.
The MSCI World 100% Hedged to USD NETR Index represents a close estimation of the performance that can be achieved by hedging the currency exposures of its parent index, the MSCI World Index, to the USD, the “home” currency for the hedged index. The index is 100% hedged to the USD by selling each foreign currency forward at the one-month Forward weight. The parent index is composed of large and mid cap stocks across 23 Developed Markets (DM) countries and its local performance is calculated in 13 different currencies, including the Euro.
The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
Euro Short-Term Rate (€STR) is an interest rate benchmark that reflects the overnight borrowing costs of banks within the eurozone.
Sterling Overnight Index Average (SONIA) is the effective overnight interest rate paid by banks for unsecured transactions in the British sterling market.
Swiss Average Rate Overnight index (SARON) represents the overnight interest rate of the secured money market for Swiss francs.
MAS is the Monetary Authority of Singapore Benchmark Govt Bill Yield 3 Month Index.
HKMA is the Hong Kong Monetary Authority Hong Kong Exchange Fund Bills Fixings 3 Month Yield Index.
This document is a marketing document in the European Economic Area (“EEA”) and approved as a Financial Promotion in the United Kingdom (“UK”). It is only intended for Professional Clients.
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Information for clients in the United Kingdom
The information set forth herein has been prepared and issued by AQR Capital Management (Europe) LLP, a UK limited liability partnership with its office at Charles House 5-11, Regent St., London, SW1Y 4LR, which is authorised and regulated by the UK Financial Conduct Authority (“FCA”).
Information for clients in the EEA
AQR in the European Economic Area is AQR Capital Management (Germany) GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung; “GmbH”), with registered offices at Maximilianstrasse 13, 80539 Munich, authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, „BaFin“), with offices at Marie-Curie-Str. 24-28, 60439, Frankfurt am Main und Graurheindorfer Str. 108, 53117 Bonn, to provide the services of investment advice (Anlageberatung) and investment broking (Anlagevermittlung) pursuant to the German Securities Institutions Act (Wertpapierinstitutsgesetz; “WpIG”). The Complaint Handling Procedure for clients and prospective clients of AQR in the European Economic Area can be found here: https://ucits.aqr.com/Legal-and-Regulatory.