Many investors made the wrong bets prior to the Brexit vote, but computers appear to have come out ahead.
And one of the reasons may be pretty simple: computers don’t have feelings.
Investors made bets based on the outcome they wanted — even if their preferences were subconscious, notes an article in The Wall Street Journal.
The problem is “projection bias,” one of several biases that investors, and all humans, are prey to.
The Wall Street Journal notes that public polls of investors and politicians all showed a belief that Britain would remain in the European Union and that tainted many people’s projections with hope.
Equity hedge funds fell about 2.1 percent on Friday alone, according to data from Chicago-based Hedge Fund Research, which was cited in the story. But a small subset of funds, called commodity trading advisors (CTA for short), saw gains. These funds are guided by custom algorithms that don’t factor in election polls, political commentary, or other sources of human chatter.
And it seems to have paid off.