ChatGPT: The Future of Stock Forecasting?

OpenAI, ChatGPT
Overall, OpenAI’s ChatGPT is an incredibly versatile tool that can be used for a wide range of purposes. Whether you need customer support, content creation, creative writing, or language learning, ChatGPT — a tool powered by GPT (Generative Pre-training Transformer), one of the most advanced language processing algorithms available today — has got you covered.

And now, maybe OpenAI’s popular tool may help you become rich — emphasis on the “maybe.”

University of Florida finance professor Alejandro Lopez-Lira suggests that large language models (LLMs) can be utilized to predict stock prices. This is a fascinating application of this technology that could have significant economic implications, according to a report by CNBC.

Last month, Wall Street’s top firm Goldman Sachs (NYSE:GS) estimated that AI could potentially eliminate 35% of financial jobs.

Lopez-Lira discovered that by analyzing financial headlines alone, ChatGPT could accurately predict stock price direction, potentially leading to improved returns. However, it is important to note that the finding has not been peer-reviewed yet. Also, it is worth mentioning that platforms like ChatGPT can’t make someone a millionaire suddenly as AI is not advanced enough for that.

“The fact that ChatGPT is understanding information meant for humans almost guarantees if the market doesn’t respond perfectly, that there will be return predictability,” the finance professor told CNBC.

It should be noted that the experiment conducted by the professor has several limitations. Firstly, ChatGPT did not analyze target prices or perform any calculations. Additionally, LLMs have a pronounced tendency to make mistakes in arithmetic.

On top of that, Lopez-Lira suggested that if everyone in the finance industry used LLMs like ChatGPT to analyze headlines, their advantage could eventually disappear and any potential gains could be wiped out.

“As more and more people use these type of tools, the markets are going to become more efficient, so you would expect return predictability to decline,” he told CNBC. “So my guess is, if I run this exercise, in the next five years, by the year five, there will be zero return predictability.”

At the same time, Lopez-Lira also noted that the “fact that ChatGPT is understanding information meant for humans almost guarantees if the market doesn’t respond perfectly, that there will be return predictability.”

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