Portfolio Management II

Reading 57. Fintech in Investment Management

Learning Outcome Statements

c. describe fintech applications to investment management;

CFA Curriculum, 2020, Volume 4

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Subject 2. Fintech applications to investment management

Text analytics uses computer programs to analyze and derive meaning typically from text- and voice-based data. Natural language processing is an application of text analytics to evaluate what people are saying in order to identify economic signals, trends and sentiments.

Robo-advisors provide digital financial advice based on math rules or algorithms. These financial services include asset allocation, portfolio optimization, trade execution, rebalancing and tax strategies.

There are two types of digital wealth management services: fully automated ones and adviser-assisted ones.

Robo-advisors are a good option for people with a simple financial situation. When the situation is complex (e.g. at the time of market crash), investors may be better off by combining a robot advisor with a human adviser.

AI-based techniques can be used in risk analysis, which includes risk assessment, real time risk monitoring, financial data quality assessment and scenario analysis.

Algorithmic trading (automated trading, black-box trading or simply algo-trading) is the process of using computers programed to follow a defined set of instructions (an algorithm) for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader. Benefits include speed of executions, lower trading costs, and anonymity.

High frequency trading (HFT) attempts to capitalize on placing a large number of orders at very fast speeds across multiple markets and multiple decision parameters, based on preprogrammed instructions.

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