The Role of AI in Enhancing Investment Strategies: Benefits and Ethical Challenges

Abstract

Artificial Intelligence (AI) has emerged as a disruptive force in financial markets, significantly reshaping investment strategies through advanced data analytics, predictive modeling, and automation. According to a PwC (2022) report, AI adoption in the global financial services sector is expected to contribute nearly USD 1.2 trillion annually to the industry by 2030, with applications ranging from robo-advisors and algorithmic trading to risk management systems. AI enhances predictive accuracy by analyzing large volumes of structured and unstructured data, including market trends, news sentiment, and consumer behavior, thereby enabling investors to optimize portfolios and achieve superior returns. Robo-advisors, such as Betterment and Wealthfront, have already democratized access to financial advisory services, managing assets worth over USD 1 trillion globally. However, the rapid integration of AI also raises significant ethical challenges. Key issues include algorithmic bias, the opacity of “black box” models, data privacy violations, and the risk of systemic failures during market volatility, such as flash crashes. Regulators and policymakers worldwide are grappling with these dilemmas, as improper governance could undermine investor confidence and financial stability. This study critically examines both the benefits and ethical risks of AI in investment decision-making, highlighting the necessity of transparent, fair, and accountable AI governance frameworks. By adopting a balanced approach, financial institutions can leverage AI’s transformative potential while safeguarding ethical standards and market integrity.