We have all seen highly realistic videos showing people placed in unreal situations. Words appear in voices that are not their own. Actions seem real but are not. All of this is the work of artificial intelligence. The line between the unreal and the real is becoming harder to draw.
AI is now entering financial markets as well. Market analysis is one area seeing steady disruption. A growing concern among analysts is whether machines will replace them. That concern is increasingly grounded in reality.
Markets consist of investors who interact with one another to seek gains. In theory, those decisions remain rational. In practice, they rarely are. In Forecasting Financial Markets, Tony Plummer showed that as trends extend, investor and trader behaviour turns increasingly non-rational. He detailed how herd behaviour shapes decision-making and how it can end in market excesses or collapses. History offers repeated examples of manias and deep depressions.
These studies rely on market data from the past century. Today’s market structure is different. The key change lies in how information reaches investors, how they interpret it and how they act on it. As technology penetrated markets, this process began to change. That shift is now accelerating.
Markets are entering a phase of rapid technological advance. The gap between data availability and its analysis continues to narrow. Each day reduces the time needed to convert information into action.
The internet first weakened the advantage of exclusive access to data and company information. AI is now eroding the analytical edge. What once took teams of analysts days or weeks to process — reading reports, visiting companies, gathering informal information, building models and producing forecasts — can now be completed in seconds through software prompts. Code, presentations and reports follow the same process.
As analysed information becomes instantly available, the advantage narrows between a professional fund manager and an individual investor equipped with a laptop and software.
As a result, the process of generating excess market returns is changing.
The question then arises. Does human ingenuity still matter?
Plummer argued that investors must learn to detach themselves from crowd behaviour. Crowd intelligence often reflects its lowest common denominator. Participants usually believe they act rationally, even as they become part of the collective without recognising it.
AI introduces a new risk. Investors can become part of a crowd far more quickly than before. These crowds now form and dissolve at speed. That process contributes to sharper and more frequent swings in volatility.
As technology advances and AI’s influence grows, more investors will outsource decision-making to machines. Once that happens, rational behaviour gives way to non-rational outcomes.
The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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