How ChatGPT Predicts Stock Performance: Finance Professor Claims

ChatGPT is a real go-getter, capable of doing various tasks. This AI chatbot does everything from creating cover letters to coding and even bringing a Furby to life.

OpenAI’s potentially lucrative tool could make you rich — though it is only possible. Alejandro Lopez-Lira, a finance professor at the University of Florida, suggests that giant language models like OpenAI could be used to predict stock prices. As reported by CNBC, this application of technology has exciting implications for economics as a whole.

Last month, Goldman Sachs predicted that about 35 percent of finance-related positions are currently at risk due to the increasing usage of AI. However, we still have a long way to go until ChatGPT can make anyone an overnight millionaire.

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In their upcoming peer-reviewed paper, Lopez-Lira discovered that using ChatGPT can successfully estimate stock market trends based on analyzing financial news titles, which could result in a noticeable return improvement.

Lopez-Lira says:

“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,”

However, the experiment conducted by the professor has a lot of restrictions. To begin with, ChatGPT never actually examined desired prices or did any computations. Furthermore, LLMs tend to make mistakes when dealing with arithmetics.

Lopez-Lira foresaw that if the entire finance industry began utilizing LLMs such as ChatGPT for interpreting news stories, their competitive edge could completely vanish over time, eliminating potential profits.

Lopez-Lira went on to say:

“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,”

“So my guess is, if I run this exercise, in the next five years, by the year five, there will be zero return predictability.”

While the claim that ChatGPT can predict stock performance is intriguing, it should be approached cautiously. Further research, validation, and evaluation are needed to assess the true potential of ChatGPT and other AI models in stock prediction. It is essential to consider the limitations, biases, and uncertainties associated with stock prediction and seek expert advice from financial professionals before making investment decisions. AI can be a valuable tool in the financial industry, but careful and responsible use is crucial to mitigate risks and ensure informed decision-making.

Source: Futurism

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