ChatGPT may predict stock prices

A finance professor at the University of Florida has claimed that artificial intelligence (AI) models might be useful in predicting stock prices. Alejandro Lopez-Lira used Open AI's chatbot ChatGPT to check headlines for whether they are good or bad for a stock. He found that the chatbot was able to predict the direction of the next day's returns, reported.

It is believed that should ChatGPT exhibit capability to understand headlines from financial news and affect stock prices, the high-paying financial sector jobs would be at risk. Goldman Sachs had said that about 35 per cent of financial jobs are at a risk of being automated through AI.

Lopez-Lira said that the chatbot is understanding info meant for humans and it guarantees that if the market does not respond perfectly, then there will be return predictability. The experiment showed how far these large language models can fulfill financial tasks, the CNBC report added. The experiment carried out by Lopez-Lira did not include target price or the model did not carry out mathematical task. Microsoft in a public demo had stated that the ChatGPT-styled technology often makes up numbers. The professor said he was susprosed by the results, and said that they suggest that the sophisticated investors are not using ChatGPT-styled machine learning yet.

Lopez-Lira and his partner Yuehua Tang looked at over 50,000 headlines from a data vendor about public shares on the Nasdaq, New York Stock Exchange and a small-cap exchange from October 2022.

They fed headlines into ChatGPT 3.5 along with the prompt and looked at the stocks returns during the next trading day. According to Lopez-Lira, the model performed well in nearly all cases when informed by a news headline.

The professor said he found a less than one per cent chance the model would do as well by picking the next day's move at random versus when it was prompted by a news headline. The ChatGPT also defeated commerdial datasets with human sentiment scores, the report added.

Lopez-Lira said that hedge funds reached out to him to learn more about his research. He also said he would not be surpised if ChatGPT’s ability to predict stock moves decreased in the coming months