AQR's Problem With Machine Learning: Cats Morph Into Dogs

Machine learning has done magic, such as beating human chess champions. But in finance, expectations for the technology may need to come down a notch or two, according to quantitative firm AQR. In a report published Monday, AQR argues that the benefits of machine learning will likely apply to problems involving optimizing portfolio construction, such as risk management, transaction cost analysis, and factor construction -- at least at first. That's because markets are different from other areas where machine learning has come to offer up breakthrough research, according to "Can Machines Learn Finance?" Machine learning changes the way problems are solved. Traditional computer programmers define all of the rules or parameters of a game.