Robot analysts make BETTER stock recommendations than human investors and earn five percent more in return, the study finds
- Researchers collected reports from various robo analyst companies in the US.
- They discovered that robots make faster and better stock recommendations than humans
- The technology also achieved a return of up to 6.9%, while people had 1.7%
- The robot’s lack of prejudice and conflicts of interest makes it more efficient
Robots are said to take over around 200,000 jobs in the next decade and a new study suggests that this prediction can quickly become reality.
After analyzing 76,000 reports from seven different robo analysis companies, researchers have found that the technology is capable of making recommendations comparable to those of their human colleagues – but faster and more accurate.
Because the automation is less subject to behavioral bias and conflicts of interest, it can provide a more balanced distribution of ratings, including the risk of the investment and suggestions for holding, selling or buying.
Looking at the robot portfolios, the study found that their purchase recommendations yielded a return of 6.4 percent to 6.9 percent, while those of its human counterparts ranged only from 1.2 percent to 1.7 percent.
Although robo analysis sounds like it could weed out human investors, researchers believe that as long as there are people who need human interaction, “the buying side, the selling side will still exist.”
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Because the automation is less subject to behavioral prejudices and conflicts of interest, it can result in a more balanced distribution of ratings, including the risk of the investment and suggestions for holding, selling or buying (stock photo)
The study was conducted by a team from the University of Indiana who wrote: “Our study provides the first comprehensive analysis of the properties of investment recommendations generated by” Robo analysts, “which are human-analyst-supported computer programs that perform automated research analyzes.
‘Robo analyst agencies generally advertise on their corporate websites with advanced technologies such as’ Natural Language Processing’, ‘Machine Learning’ and ‘Artificial Intelligence’ and produce reports that rely more on technical analysis than on subjective insights.
The researchers noted that robo analysts are able to produce a more balanced distribution of buying, holding and selling recommendations than human analysts, suggesting that they are less susceptible to behavioral bias and conflicts of interest.
Human analysts work on a good relationship with business management, while robots are unable to have the same conversations, Bloomberg reported.
Looking at the robot portfolios, the study found that their purchase recommendations yielded a return of 6.4 percent to 6.9 percent, while those of its human counterparts ranged only from 1.2 percent to 1.7 percent
Although those on the other end of the conversation may not get the same flare in the beginning, calls from the robot can “generate significant returns for individual investors,” the experts shared.
While investigating the reports, the researchers discovered that of all the excellent recommendations from the robo analysts, more than 30 percent represented representations of purchases, compared to 47 percent of traditional analysts (the total number of excellent recommendations from traditional analysts).
It was also discovered that about a quarter of technology recommendations were considered sales, compared to just six percent of human analysts.
The study also highlights the results of purchase recommendations, which, according to the robot analyst, lead to the generation of ‘economically and statistically significant positive abnormal return’.
The reports show that the technology earned about 6.4 percent to 6.9 percent in return, while the portfolios of human analysts ranged only from 1.2 percent to 1.7 percent.
“Our results ultimately suggest that Robo analysts are valuable, alternative information intermediaries for traditional sell-side analysts,” the study said.
“These findings are important in the light of both technological developments in the financial sector and changes in the traditional research paradigm on the sales side”