A new study has found that hedge funds with the highest level of automation outperform those that rely more on human engagement.
During the period studied (2006 to 2021), AI-based hedging funds evolved achieved average returns of about 0.75% per month, versus about 0.25% per month for human-led hedge funds.
The study, titled “Man Versus Machine: On Artificial Intelligence and Hedge Funds Performance ,” was determined by researchers from Texas A
In contrast, the average returns for the least automated category of funds – the discretionary funds – were only 0.23-0.28 basis points, i. H. a difference of about 0.5% per month when compared to the AIML funds.
Specifically, the authors write that employing a strategy that relies on AI-driven funds produced “statistically significant average payouts in the range of 50 to 56 basis points per month”.
Combined funds performed worst
Interestingly, the authors also found that the so-called “combined funds” with a medium grade Lowest performers of the four types of hedge fund strategies in terms of automation and human involvement.
“We conclude that mixing human decision-making with automated processes,” they write, “is inferior to relying predominantly on either human or machine decision-making. This mystery is left for future research.”
In sum, they found that the AIML funds “achieved superior average returns compared to hedge funds with a higher level of human involvement.”
The authors add that this is the first study they are aware of that has conducted such a performance comparison of hedge funds.
Study: “Man versus machine : on Artificial Intelligence and Hedge Funds Performance“Authors: Klaus Grobys, James W. Kolari and Joachim NiangDate of publication: 22. April 2022Journal: Applied EconomicsDOI: https://doi.org/10.1080/00036846.2022.2032585Image: by DepositPhotos
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