AI in Financial Markets: Enhancing Efficiency or Increasing Systematic Risks?

Essay Instructions:

It should be an argumentative essay. And you should use APA style in-text citations. I would prefer you to use the sources I will link below (please use peer-reviewed sources and if you can, please check if my sources are peer-reviewed or not). Also you should mainly focus on the AI aspect and maybe use some financial terms as well. Please use the outline I provide below. Introduction: • Explaining the increasing role of AI systems in financial markets. (Dunis, C., Middleton, P. W., Karathanasopolous, A., & Theofilatos, K. (2016). Artificial intelligence in financial markets. London: Palgrave Macmillan.) • Thesis statement stating that while AI can certainly enhance efficiency, it may also show potential risks for financial stability. (Peterson K. Ozili, 2021) • A brief overview of evolution and history of artificial intelligence on FinTech (financial technology). (Cao, L. (2020). AI in finance: A review. Available at SSRN 3647625.) Body: • Explaining artificial intelligence’s role in enhancing efficiency in financial markets and examples of how AI-driven algorithms are much more efficient compared to humans. (Hidayat, M., Defitri, S. Y., & Hilman, H. (2024). The Impact of Artificial Intelligence (AI) on Financial Management. Management Studies and Business Journal (PRODUCTIVITY), 1(1), 123-129.) • Explaining the potential risks that surround artificial intelligence in financial markets. Such as how AI algorithms can cause “flash crashes” and increase systematic risks. (Kamruzzaman, M. M., Alruwaili, O., & Aldaghmani, D. (2022). Measuring systemic and systematic risk in the financial markets using artificial intelligence. Expert Systems, e12971.) • How we can balance between efficiency and reduce risk for AI in financial market. Proposal of strategies for enhancing risk management. Conclusion: • Restatement of the main point of the paper. Emphasis on the need for a cautious approach to AI in markets. References • Dunis, C., Middleton, P. W., Karathanasopolous, A., & Theofilatos, K. (2016). Artificial intelligence in financial markets. London: Palgrave Macmillan. https://link(dot)springer(dot)com/content/pdf/10.1057/978-1-137-48880-0.pdf • Peterson K. Ozili, 2021, Big data and artificial intelligence for financial inclusion: benefits and issues. https://papers(dot)ssrn(dot)com/sol3/papers.cfm?abstract_id=3766097#paper-citations-widget • Cao, L. (2020). AI in finance: A review. Available at SSRN 3647625. https://papers(dot)ssrn(dot)com/sol3/papers.cfm?abstract_id=3647625 • Hidayat, M., Defitri, S. Y., & Hilman, H. (2024). The Impact of Artificial Intelligence (AI) on Financial Management. Management Studies and Business Journal (PRODUCTIVITY), 1(1), 123-129. https://journal(dot)ppipbr(dot)com/index.php/productivity/article/view/35/31 • Kamruzzaman, M. M., Alruwaili, O., & Aldaghmani, D. (2022). Measuring systemic and systematic risk in the financial markets using artificial intelligence. Expert Systems, e12971. https://onlinelibrary-wiley-com(dot)tilburguniversity(dot)idm(dot)oclc(dot)org/doi/epdf/10.1111/exsy.12971 • Daud, S. N. M., Khalid, A., & Azman-Saini, W. N. W. (2022). FinTech and financial stability: Threat or opportunity?. Finance Research Letters, 47, 102667. https://www(dot)sciencedirect(dot)com/science/article/pii/S1544612321005936/pdfft?casa_token=8Hv83CM0PD8AAAAA:_fsvHgHQnsBHRaiZIAngZ26blF-NBnmKk1e8iXC9Oe_-ofGq7RSW8w-G5tKtGigzldSbmw0ruA&md5=9ee77c1a18d3ae7a6a9665976c5ea66c&pid=1-s2.0-S1544612321005936-main.pdf

Essay Sample Content Preview:

AI in Financial Markets: Enhancing Efficiency or Increasing Systematic Risks? Name Institutional Affiliation Instructor Course Date AI in Financial Markets: Enhancing Efficiency or Increasing Systematic Risks? The financial markets have recently experienced a sharp rise in artificial intelligence (AI) technology integration, significantly transforming the nature of trading and investment activities. Through deep learning models and machine learning algorithms, AI has revolutionized how financial institutions deal with risks, carry out trades, and analyze data. Technological changes such as the rising data collection and storage rate and the need for digitalization and globalization to get an edge in the world market are significant contributors to the growth of the big data industry. Dunis et al. (2016) research report financial institutions are lately valuing the use of AI technologies in obtaining complex information from massive amounts of data. The technologies enable the creation of speedy and exact decision-making abilities using data. The financial market depends more on AI technologies to cut costs and optimize and automate all the processes in the financial industry. When it comes to AI, these algorithms can take over and run tasks that are repetitive, like completing a destination for trading or analysis of data, saving labor, and reducing the likelihood of errors automatically. With AI technologies, investors and traders can capitalize on profitable trading opportunities, assess trends in the market, and effectively deal with risks through necessary measures leading to a positive impact on the market. AI systems will be critical in financial markets to grow prominently if financial markets adopt AI advances to disrupt conventional methods and lead financial operations toward a technologically and data-driven future, according to a study by Cao (2020). AI has undoubtedly enhanced efficiency in financial markets, but also increased potential risks for financial stability. Artificial intelligence integration is vital for making the financial market efficient. AI's powerful algorithms that can process unbelievable volumes of data at supersonic speed and accuracy allow for more intelligent investments and innovative risk management (Hidayat et al., 2024). In contrast to traditional models based on manual data analysis, machine learning algorithms, such as pattern recognition and trend forecasting in the market data, provide more accurate and efficient strategies for trading (Hidayat et al., 2024). Moreover, AI-powered robo-advisors simplify the process of information access by providing individualized investment suggestions and portfolio...

Updated on May 30, 2024

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