A.I in Finance, in General.

As I finish up my official post for this week, I thought I’d share a really interesting and informative video on A.I in finance:

The video is done by Siraj Raval, a Youtuber with a whole pool of great videos on different implementations of A.I. I like this video because Siraj really clearly lays out the many shortcomings of trading companies which could be improved with A.I-based algorithms. For instance, I didn’t know that investment banks are trying to use technology which can recognize fraudulent stock orders, to improve security and avoid losses. Also, did you know that banks are testing A.I which can predict whether or not a customer will pay back their loans? And, did you know that 90% of the world’s data (not just financial data, but ALL data) was created in the past two years? I can hardly wrap my mind around the last one, but if it is really true, then this is probably the best time for testing A.I on financial data.
Up until now, my view of A.I in finance was pretty restricted to trading algorithms, but I know see that this is just one of the many (he brings up 5 categories in the video, with several subcategories to each) areas of interest.
What I found even more intriguing was that Siraj actually brings up the idea of using vector support machines to learn financial data. This is nothing groundbreaking, but it is interesting to consider how I might use VSMs in my work. Vector support machines are algorithms which can classify a data set of vectors into different categories, and then use this knowledge to classify future, unknown vector entries into these defined categories. Essentially, VSMs can predict where a vector ‘belongs’. This could be useful, as both Word2Vec and BERT generate vector representations of information. Whichever one I use, I might want a system which can classify my vectors in order to improve learning or efficiency.
Finally, one quote that resonated most with me was this:
“If you can tackle a single, niche problem very well, then you are golden. That’s when they [hedge funds] will come to you, and when you will build a brand around this.”
 
This really sums up [my understanding of] the current state of affairs in quantitative finance. Right now, there is so much data and so much technology available to investors and hopefuls alike, that there is no longer a point to trying to ‘predict the stock market’ as a whole. Rather, all this data means there’s an abundance of small, specific opportunities which can be capitalized upon, and everyone is competing to see whose specific opportunity yields the most return, most efficiently.
 
 
 
 
 
 
 
 
 

Interesting Read: Sentiment and Market Predictions vs. Reality

An article exploring why bull market predictions are so often wrong was recently posted to Medium. The article begins by showing how popular Reddit headlines which evoke optimist sentiment in the Bitcoin market often correlate to the opposite — The drastic fall of Bitcoin’s price and market cap.

Ironically, bullish headlines littered the front cover of Reddit all through Bitcoin’s collapse. The concept of bloggers being wrong about market outlooks is nothing new, but I would definitely recommend reading this article, as it explains some of the disconnect between news headlines and actual stock market behavior. It’s also pretty useful, as the logic used by the author could just as easily be used to explain why Bear Market predictions are wrong — it’s the same concepts of extrapolation bias and probability neglect.
This is interesting to me, knowing that earlier in the year, I considered using online sentiment as a viable method for generating market projections. I also see this and think about all the noise in stock market data, and wonder how much of this noise comes from naive investors following bullish/bearish headlines like the ones above. With all of this in mind, I wonder how hedge funds like Periscope Capital Inc. rely so heavily on sentiment analysis when creating their portfolios.
Another interesting note is on the Eureka Hedge Fund Index, which is starting to dip after rising steadily for the past seven years:
EurekaHedgeFunds
https://medium.com/the-crypto-times/why-market-predictions-are-almost-always-wrong-7aa8e3f132ff

Shooting Back at America’s Deadliest Problem

It is now a well known fact that mass shootings in America have become a common occurrence, with death rates attributed to such incidents higher than those in almost all other developed nations. Throughout the past decade and a half, we have seen the number of school shootings skyrocket, as have the number of public massacres. In fact, such tragedies have become so familiar that it is difficult for us to be shocked when another, new one takes place. We have reached a point in time where parents from all around the world are reluctant to send their children to American schools in fear that they might one day get shot on campus.
As if this weren’t already bad enough, research and statistics have revealed that mass shootings in this country are appearing more and more frequently, especially in the past few years.
Just take a look at these alarming charts:
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And arguably the most alarming chart of all:
time-between-mass-shootings
I would keep supplying you with charts, statistics and pictures illustrating the true magnitude of the problem at hand, but that would be useless, because the issue is, and has been for quite some time now, very evident. Too many people who shouldn’t be allowed to be in possession of dangerous weapons are somehow getting hold of assault rifles and other various firearms. However, this isn’t the real problem, this is merely one of the many roots of our problem. The real trouble is coming as a result of our unwillingness to take action, our disinclination to have some actual initiative to deal with what is happening.
Since gun violence is a popular debate topic in America right now, we have been graced with the opportunity to hear many various politicians speak about their opinions regarding the subject and to discover their proposals on how to deal with the crisis. Or at least that’s what should be happening. When you actually listen to what many of these politicians say in response to the inexplicably high number of school shootings, they usually always respond with the generic “This is an obvious problem, and we have to work together to solve it or else it will keep happening again.” Yes, I know that in reality, they don’t make this same exact statement, but most of their speeches end up leaving us with the same sense of emptiness and disinterest as the previous one. Everyone says that we need to change our flawed system, but they never provide the concrete solutions or suggestions that are necessary to inspire change, as it is harder for people to aspire to accomplish something when they don’t know what they would have to do in order to accomplish it. So to avoid being a hypocrite and to try my best to stray as far always as possible from the hollow, meaningless method of speaking that we see so often in the news, I am going to provide you all with some feasible solutions to help solve our nation’s most pressing issue.
Suggestion Number 1:
As I stated previously, our main problem derives from the fact that too many people who shouldn’t be in possession of potentially harmful weapons manage to have access to guns. I believe that this happens because the requirements one has to meet in order to purchase a gun aren’t nearly as strict as they should be. Take a car, for example. To get a driver’s license, you must first take driving courses,  then you must fill out several time consuming forms and questionnaires at the DMV, and then you must finally engage in a driving test in which a trained driver assesses your skills and eventually helps decide whether or not you are eligible to drive on your own. We make the process so demanding because cars are potentially dangerous when driven by people who haven’t been deemed safe and responsible. The same goes for guns, as they can be extremely harmful when used by someone who isn’t trustworthy or sensible, yet the procedure for purchasing a rifle is far less sophisticated and complex than the procedure for receiving a driver’s license.
Suggestion Number 2:
After school shootings occur, one question that tends to pop-up in the discussion is “Who was the kid who did it, and why did he/she do it?” However, it is useless trying to identify and analyze the culprit after he/she already committed his/her crime. If we really want to prevent future school shootings from taking place, we have to learn how to identify mass murderers before they become mass murderers. I know that this may sound like an unfathomable task, but there are already several scientifically proven characteristics that mass murderers portray that can be identified before the person has done anything wrong. For example, most school shooters have been described as antisocial, angry students who didn’t ever seem to fit in with the crowds. Additionally, it has been proven through scientific studies that individuals with unusually slow heart-rates and with prefrontal cortexes that aren’t functioning properly are more likely to engage in violent behavior. Now I’m not saying that we should incarcerate every person who has a slow heart rate, but I’m saying that we should be more actively searching for these kinds of clues/indicators in children and proceed by paying closer attention to these childs’ behavior and giving them help when needed.
Suggestion Number 3:
My third suggestion ties in with the previous sentence, which mentioned how we should be giving troubled children help when they need it most. In America, we have done a historically poor job of treating mentally ill patients. In the past, we had insane asylums which were supposed to be hospitals made specifically to treat the mentally unstable, but often worsened the patients’ symptoms because of their poor conditions. Right now, things aren’t much better, either, as we do not have enough systems set in place to help out those who are mentally insane. In many mass shooting cases, the shooter turns out to be a person who had psychological problems that were not treated or attended to. I believe that the creation of more effective, helpful systems to take care of those who are mentally ill would be a benefit to everyone, as the patients would receive the support they desperately need while the citizens would be safe from mentally unstable individuals who could very easily do something terrible because of their inability to make sound judgments.
Suggestion Number 4:
I purposely saved this proposal for last because it is likely to become one of the most controversial and if it actually becomes a reality, then the rest of this essay would be irrelevant because it would essentially put an end to all mass shootings in America. I truly believe that there is no logical reason for American citizens to have the right to have guns in their possession. Pro-gun groups use the argument that gun control wouldn’t work and that guns are necessary for people to protect themselves, but right now it is hard to believe that guns are more beneficial than they are damaging. Take a look at Australia, for example. Following a mass shooting in a place called Port Arthur, the prime minister installed strict gun control laws all across the nation. Ever since the inauguration of this system, there have been no mass shootings whatsoever in the entire country. That’s right, 0 shootings in nearly 20 years, compared to about 20 shootings in one year in America. My suggestion then, would be to get rid of all guns, because the positive effects of doing so are evident. However, I would still allow citizens to purchase weapons for self that defense that aren’t lethal, but can be of great help in a time of need, such as tasers or BB/airsoft guns. I would do this because it would be impossible to kill 20 people at a school using a taser, and those who would want to have an effective means of self defense would be able to get want they want. In this scenario, nobody would lose.
In conclusion, nobody has to listen to anything that I have to say. The nation can continue doing what it is currently doing, and people can go on living their lives without having to worry about putting in any effort to change. If you think about it, we don’t need to do anything at all, but if we do revert to this aloof and ignorant behavior, we shouldn’t be shocked when another school shooting occurs, followed by another more tragic than the one before, and so on and so forth. We don’t have to change, but we can’t expect something to change without us taking action. So, to summarize things, I will present you with a quote whose significance is hopefully not to difficult to discern:


“Insanity is doing the same thing over and over again and expecting different results.”
-Albert Einstein

Falling Off the Cliff Of Reason

Inflation is happening, and most people don’t seem to mind yet, especially those who claim that there isn’t any,
Earlier this week, the generous Federal Reserve declared that zero-percent interest wouldn’t be going away any time soon. Since there is obviously no bubble and therefore no reason to stop nonsensical lending and spending. As always, all is well. Well, for some, at least.
If you make $500,000 a year, then rent prices going up from $2,000 to $2,500 won’t bother you. But for those who receive $50,000 salary, this five hundred dollar increase makes all the difference.
In Silicon Valley, all residents, both poor and unjustifiably rich, are beginning to feel the effects of the rogue price increases. Teachers, who earn somewhere around $60,000 every year, can’t afford to live within the city and near the local schools. Those who haven’t left already are finding new ways to deal with the situation. One resident came up with the idea of renting out converted shipping containers that were modified to resemble normal houses. You would think that the living costs for such extravagant residences are through the roof. Well, you would be right, because the monthly rental fee for a shipping container in San Francisco is $1,000.
We are living in an age where lower-middle class citizens in American cities can’t afford to live normal lives, and soon, they won’t be able to live lives of any kind. It’s just too expensive, and what makes the whole matter worse is that there is no logical reason for prices to be this high.
Meanwhile, life is just getting better and better for those who can afford to enjoy themselves. While the majority of American civilians struggle to get by, even while living inside shipping containers, the disproportionately rich are sending luxury car sales to levels above those of regular car sales. (If you don’t believe me, click here).
Here’s a fun fact:
This year, an apartment was put on sale in downtown New York City. I know that this happens a lot, but this was no ordinary apartment, as it is had an asking price of $95 million.
Many people have been saying that the government is purposefully increasing prices to benefit the rich and make everyone else’s life miserable. This may sound like it makes sense at first, but it really doesn’t. It’s ridiculous. If prices continue moving in an upward direction, workers will slowly realize that there is reason for them to live here anymore and will logically start emigrating. Right now, life is great for rich people because they can enjoy while poor people do dirty work for them. When there are no more plumbers around to fix their bathroom sinks, they will finally realize that something isn’t right, but then it will be too late.
So, this leaves us with only two logical solutions:
Either raise wages or lower prices.
If we continue ignoring the obvious price crisis, then citizens will, slowly, begin to notice the absurdity and one day, they will decide that they’ve had enough and they’ll leave. Or go on strike. Or worse…
This can’t last. Something has got to give, or the entire system will collapse on itself.

Striking Similarities–What The Recent Stock Rebound Shows Us

Although stocks have been rebounding (who would have known)  for the past few days, we can not simply ignore the losses that took place late last week and the micro-crash that ensued. Contrary to what economists and market specialists alike have been declaring, everything is not perfect in the stock market. We just got a sneak-preview of what could very likely happen some time in the near future, at a time when panicky investors collectively realize that they have put too much faith into a system that is flawed by nature.
You may wonder why I am constantly proclaiming that a crash is coming. If you follow my blog, you would know that last week, I made a post concerning China’s failure to learn from the mistakes made in the past. In this post, I stated a quote which somehow always seems to be relevant:

“History doesn’t repeat itself, but it often rhymes.”
-Mark Twain

Right now, things are looking eerily similar to what has happened many times before. Historically, before massive stock collapses, there would be sudden volatility and shakiness in the market. This would be the cause of relatively small, recurring movements in the price of stocks. After falls in prices, there would be upwards movements (rebounds) which would offset the losses. However, some time later (almost always in the months of September and October) the volatility would return and create even greater declines and panic, and in turn would send the entire market crashing when everybody begins selling in an effort to save their money.
In my opinion, the sudden carnage that ended this week should not be considered to be a crash, but it’s very close to becoming one…
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