Imperfect algorithms impact market pricing – Fed paper
News-parsing algorithms create temporary distortions and may cut liquidity, paper finds
Imperfections in algorithms designed to capture the news content of articles can create temporary price distortions and cut liquidity, a discussion paper published by the Federal Reserve finds.
First to “read” the news, by Bastian von Beschwitz, Donald Keim and Massimo Massa, tests for the causal effects of algorithms by studying whether markets respond to false positives and negatives. The authors focus on the RavenPack algorithm, which extracts the informational content of Dow Jones newswire
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