# Artificial Intelligence Increases Risks in Financial Markets

Artificial intelligence is playing an increasingly significant role in financial markets. According to Bernstein, it makes trading more efficient, though it also brings new risks.

In companies, artificial intelligence processes financial reports and other data much faster than humans. As a result, information spreads more quickly, which is reflected faster in stock prices.

Thanks to automation, analysts can evaluate more companies. Because of this, research on small-cap companies in emerging markets has particularly increased over the past year. However, analysts believe that the widespread adoption of artificial intelligence has its downside. If many investors rely on the same data and similar algorithms, their decisions will become similar. In such cases, if the market experiences stress, the probability of sharp price movements also increases. One example of this can be seen in the Japanese yen market developments in August 2024. False information created by artificial intelligence caused temporary instability in the market.

Bernstein also draws attention to another risk. This is the "feedback effect," when artificial intelligence recommendations influence investors' decisions, and these decisions in turn change the market prices themselves. As a result, the same trend becomes even stronger.

According to Bernstein, artificial intelligence makes daily trading more efficient, but during crisis periods it increases the risk of sharp market fluctuations and financial shocks.

Source: Investing.com