Can AI Help One Beat the Stock Market?

Abstract

Artificial Intelligence (AI) algorithms have taken the world by storm with applications being contemplated in a multitude of areas of professional and personal significance. Whether one can ‘beat’ the stock market in terms of the implied average returns of a diversified portfolio over an extended period has been discussed for decades. It may then be a natural question to ask whether AI can help an investor beat the market. This article investigates this question.

This paper examines whether AI can revolutionize investing and help investors beat the market. This article defines what it means to “beat the market” and why understanding this is crucial, and explores why most investors, both ordinary and professional, struggle to outperform the market long-term. The Efficient Market Theory (EMT) is explained and its key assumptions that hinder consistent success in investing. There is a discussion of AI’s potential to assist investors and whether it can challenge any of the EMT assumptions. Finally, an experiment is conducted which assesses AI’s effectiveness in investing, comparing the results of AI-generated portfolios to common index funds and those of other well-known investors.  The results suggest that the AI-generated portfolios beat the other funds.