Morgan Stanley uses artificial intelligence to test what happens when its analyst and the markets disagree on a stock.
strategy in June that studied its own analyst reports. The strategy, which relied on what the bank calls "Machine-Read Analyst Sentiment" or "MRAS," beat the S&P 500 during a backtest.
They found that when analysts go against the market, their calls are often correct. Even when stocks swings go against analysts, after a few weeks, those swings often reverse themselves. The bank's research team built the MRAS by training AI on more than 40,000 reports to develop sentiment scores for analyst notes. The team then used the sentiment scores in the reports with a price target change for a stock to take hypothetical positions.
The analysis found that, for trades where the MRAS strategy was bullish and the initial market move was negative, the strategy beat the S&P 500 by an average of 1.9% over a 60-day period. The strategy saw similar success when those positions were flipped.
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