Three Ways A.I. Can Improve Decision-Making
Researchers are using machine-learning models to improve how investors allocate their funds.
Three Ways A.I. Can Improve Decision-MakingNewer managed funds tend to offer greater returns than their older, more established counterparts, according to Professor Lubos Pastor, with Robert F. Stambaugh and Lucian A. Taylor of Wharton. It’s a finding that media outlets have seized on. “Why New Mutual Funds are Better” was the Wall Street Journal’s headline.
But before you’re taken in by the promise of youth, it’s important to note the details. The research suggests that youth has promise, but it also suggests that youth fades quickly in the marketplace, as elsewhere.
According to Pastor, Stambaugh, and Taylor’s research, funds that are three years old or less outperform those that are at least a decade old by 1% per year, on average. Funds aged between three and six years also outperform the oldest funds. A fund’s ability to beat its benchmark tends to deteriorate as the fund gets older, in part because of the continued arrival of new competitors.
“Learning on the job seems to alleviate the negative impact of growing industry size on performance, but it does not eliminate it,” says Pastor. “Fund managers pick up new skills on the job, but they don’t improve fast enough to compete successfully with the new entrants in the industry.”
Lubos Pastor, Robert F. Stambaugh, and Lucian A. Taylor, “Scale and Skill in Active Management,” NBER working paper, January 2014.
Researchers are using machine-learning models to improve how investors allocate their funds.
Three Ways A.I. Can Improve Decision-MakingPrivate debt funds are filling a $1 trillion hole in the lending market for middle-market businesses that can’t get conventional bank financing.
With Business Loans Harder to Get, Private Debt Funds Are Stepping InPolitical ideology affects the international lending and investing activities of US banks and money managers.
How US Political Divisions Shape Global InvestingYour Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.