Robots vs. Investors: Battle of Sentiment

Investors managed to shake off last year's losses and helped the markets back some of the losses after the start of 2019. However, robots remain "unanimous" in the bearish mood.

Robots programmed for trading through forward-looking strategies have become a major force in financial markets. Their "mood" has changed from a whip to a sword to a degree unseen by decades, according to a recent analysis of the algorithms they buy or sell at the price momentum.

Until the third quarter of 2017, the robots were in hold or net long positions and bet that prices will continue to rise in four major classes of assets - stocks, bonds, currencies and commodities. Currently they are in the current short status or bet against the markets. Except for bonds.

This shows the findings from the analysis of the Quantitative investment firm AlphaSimplex Group, based on a model that measures the effect of price movements, making a decision as a typical trending algorithm. They usually aim to follow a market when he moves heavily in one direction.

Trending algorithms sell off risky assets with an unprecedented degree. This is caused by the fears of reducing global economic growth.

"It's like the pattern of chaos." "says Kathryn Kaminski, chief portfolio manager and strategist at AlphaSimplex, which adds that the last time robots changed so sharply was in 2007 and 2008." In general, whatever you test the model, it always starts shortens a lot of asset classes. "

The mood swing in robot-driven funds comes from weak economic data and geopolitical uncertainty last year, which raised doubts about the global economy. This brought the shares from their peaks to record their worst annual performance since the financial crisis.

However, the robot's swinging attitude is in contradiction with many of Wall Street's analysts, who believe that the sale of the shares is over. Until recently, market volatility brought investors and machines into collision. Many market participants believe that machines are the main culprit for aggressive and steep downward movements. Many of the traders and investors believe that these algorithms exaggerate volatility, as many of them react to price movements as they accumulate on a deal. Others, however, argue that robots have already entered markets that are strong enough with short positions and are currently holding, which leads to a reduction in volatility.

Quite a few, however, the funds with such strategies ended last year with poor performance because it was quite difficult to attach to many trends at one time. Following the fall in the economic outlook, these funds have attracted a lot of investors due to their ability to generate profits during a prolonged sell-off period. But mathematical models made it hard to predict where the markets would be heading because of the high uncertainty surrounding trade talks and mixed economic signals. Such volatility continues to confuse algorithms, and stocks and commodities continue to recover.

Source: The Wall Street Journal

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