Is it Real, or is it Randomized?: A Financial Turing Test

12 Pages Posted: 26 Feb 2010 Last revised: 25 Jan 2015

See all articles by Jasmina Hasanhodzic

Jasmina Hasanhodzic

Babson College - Finance Division

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Emanuele Viola

Northeastern University

Date Written: February 23, 2010

Abstract

We construct a financial "Turing test" to determine whether human subjects can differentiate between actual vs. randomized financial returns. The experiment consists of an online video-game where players are challenged to distinguish actual financial market returns from random temporal permutations of those returns. We find overwhelming statistical evidence (p-values no greater than 0.5%) that subjects can consistently distinguish between the two types of time series, thereby refuting the widespread belief that financial markets "look random". A key feature of the experiment is that subjects are given immediate feedback regarding the validity of their choices, allowing them to learn and adapt. We suggest that such novel interfaces can harness human capabilities to process and extract information from financial data in ways that computers cannot.

Keywords: Market Efficiency, Human Pattern Recognition, Machine/Human Interfaces, Technical Analysis, Video Games

JEL Classification: G14, G17, D81

Suggested Citation

Hasanhodzic, Jasmina and Lo, Andrew W. and Viola, Emanuele, Is it Real, or is it Randomized?: A Financial Turing Test (February 23, 2010). Available at SSRN: https://ssrn.com/abstract=1558149 or http://dx.doi.org/10.2139/ssrn.1558149

Jasmina Hasanhodzic

Babson College - Finance Division ( email )

Babson Park, MA 02457-0310
United States

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Stata Center
Cambridge, MA 02142
United States

Emanuele Viola

Northeastern University ( email )

Boston, MA 02115
United States
(617) 373-8298 (Phone)

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