This is not an article about the joys and wonders of machine learning or big data. Instead, this article is about a pernicious, unsolved problem in investment finance we continue to ignore, for which machine learning and big data may represent one probable solution.
Every time there is a correction in the stock market, or a recession in the economy, there are doomsayers who proclaim that the inevitable next step is a “great” recession, or perhaps even a depression. While corrections and recessions may lead to financial crises, a more certain intermediate step is the collective fear that all market participants are (or at least may be) tainted, a fear that negatively impacts trading volumes and liquidity at a time when all market participants seek to rebalance their portfolios.
Author: Bill McCoy and Henri Waelbroeck