ChatGPT can predict stock prices, says financial expert

AI language models such as GPT-3, on which the ChatGPT chatbot is based, will one day be able to accurately predict stock prices. Striking predictive results are already possible, as Alejandro Lopez-Lira, a professor at the University of Florida’s Finance Institute, discovered.

As part of an experiment, Lopez-Lira and his colleague Yuehua Tan taught ChatGPT to analyze news headlines on financial topics. A chatbot with artificial intelligence must recognize whether the news is good or bad for the future price development of certain stocks.

Based on the news situation, ChatGPT was supposed to predict stock price movements – and, according to scientists, the prediction was surprisingly often correct. The chatbot with artificial intelligence worked better than conventional stock market analysis tools. The predictions were also more accurate than random predictions.

Experiment reveals limitations of AI language models

However, the experiment also revealed the current limitations of language models when it comes to specific calculations. Microsoft’s presentation in February 2023 showed that chatbots with artificial intelligence generally don’t get along with mathematics.

ChatGPT did not produce any target corridors for the stock prices analyzed in the stock experiment. Nor was it required to do any mathematical calculations. Lopez-Lira was only analyzing and predicting future stock market sentiment based on headlines.

Professional traders probably don’t rely on ChatGPT yet

The financial expert was surprised by the results. For one thing, according to the scientist, the experiment shows that stock market professionals are not yet using the power of AI language models in their trading strategies.

In addition, the potential of chatbots with artificial intelligence is also evident when it comes to analysis and forecasting in the financial sector. Why, asks the finance professor, should financial firms still pay human analysts when AI can perform their tasks just as well?

ChatGPT’s predictions are likely to be obsolete in five years

On the other hand, ChatGPT’s ability to predict stock prices will come close to zero to the extent that companies are betting on it. Lopez-Lira told CNBC that his tool will no longer work within the next five years.

Because the headlines will be analyzed in real time with AI support and adjusted accordingly within seconds, the news will have long since been factored into price action.

For their experiment, Lopez-Lira and a colleague provided ChatGPT with more than 50,000 headlines about Wall Street, Nasdaq and small-cap companies. A chatbot with artificial intelligence learned what news was good or bad for certain companies and predicted upward or downward movements for the next day accordingly.

Predictions outperformed coincidences and the stock market barometer

In only one percent of cases, ChatGPT predicted stock movements by chance-that is, without any prior information from the headlines. The bot was even able to correctly classify headlines that seemed negative at first glance.

The high-fee litigation settlement did not cause the stock market to be in a bad mood, as ChatGPT acknowledged. The price of the stock in question moved upward. Investors saw the litigation settlement as positive news and the penalty as a lesser evil.

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