Be Wary of Black-Box Trading Algorithms

Gary Smith

Economics Department, Working Paper Series from Economics Department, Pomona College

Abstract: Black-box algorithms now account for nearly a third of all U. S. stock trades. It is a mistake to think that these algorithms possess superhuman intelligence. In reality, computers do not have the common sense and wisdom that humans have accumulated by living. Trading algorithms are particularly dangerous because they are so efficient at discovering statistical patterns—but so utterly useless in judging whether the discovered patterns are meaningful.

Keywords: algorithmic trading; black box trading; quants; artificial intelligence (search for similar items in EconPapers)
Date: 2019-01-01, Revised 2019-06-04
New Economics Papers: this item is included in nep-big and nep-pke
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