Shuang Chen
University of Melbourne, Australia

Abstract:

This paper examines AI adoption in asset management and its investment implications. We document that AI-driven investing is concentrated among hedge funds, particularly those employing systematic diversified macro strategies.  AI funds significantly outperformed non-AI hedge funds on a risk-adjusted basis in the early years, but this outperformance declined over time and mostly disappeared with the growth of AI-driven investing. Adviser heterogeneity does not fully explain the performance of AI funds, as they outperform their non-AI sibling funds. We also find that AI funds exhibit greater comovement than non-AI funds. Our findings highlight both the alpha-generating potential and the limitations of AI as a source of investment performance.

Shuang Chen is an assistant professor at the University of Melbourne. Her research focuses on institutional investors, labor markets, and sustainable finance. She received her Ph.D. in Finance from the Swiss Finance Institute at USI Lugano in 2023 and was a visiting scholar at the University of Texas at Austin from 2021 to 2022.