Investment research analysts beware, your robot colleagues are already outperforming you, according to a paper from Indiana University.
Wall Street is increasingly turning to robo-analysts, human-analyst-assisted computer programs that do the same work as humans in equity research departments.Download the document now 987.9 kb (Chrome HTML Document)
And, according to the study from researchers at Indiana University's Kelly School of Business, the robots are more than holding their own against their expensive, fleshy colleagues.
The researchers examined more than 76,000 research reports issued by a group of robo-analyst firms, finding that portfolios formed based on their buy recommendations appear to outperform those of human analysts - suggesting that their buy calls are more profitable.
In addition, robo-analysts collectively produce a more balanced distribution of buy, hold and sell recommendations, which the researchers say suggests they are less subject to "behavioural biases and conflicts of interest" than humans.
Robo-analysts also revise their reports more frequently than their human counterparts, with these revisions relying less on earnings announcements, and more on the large, volumes of data released in firms’ annual reports.
Finally, robot reports exhibit weaker short-window return reactions, suggesting that investors do not trade on their signals.
"Our results ultimately suggest that Robo-Analysts are valuable, alternative information intermediary to traditional sell-side analysts," concludes the study.
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