A study published by the University of Florida recently uncovered a remarkable result – investing using an AI application named ChatGPT outperformed the stock market average by 400% during the October 2021 to December 2022 period. ChatGPT, developed by OpenAI, is a large language model – an AI algorithm that analyses elements such as insight and sentiment of news stories.
The study looked at 67,586 headlines in total, related to 4,138 companies, and tracked the actual stock prices for the same period of time. ChatGPT performed sentiment analysis to determine whether headlines were positively or negatively rated towards the associated companies. An investment of $1 in the market, when bought on good news and sold on bad news according to ChatGPT, resulted in a return of over $5.50 minus transaction costs.
Another interesting result was that stocks with lower market capitalization had bigger price shifts when reacting to ChatGPT’s sentiment analysis. A positive headline increased the stock price of a smaller company by an average of 60 basis points; however, it only impacted larger stocks by 20 basis points. This could be because the market is more familiar with the information related to bigger companies, so their stocks are less sensitive to external sentiment.
The huge advantage of using AI in stock trading is the speed. AI algorithms can digest headline data and perform sentiment analysis far quicker than a human, allowing investors to act much faster on shifts in public sentiment.
The person behind this research is Alejandro Lopez-Lira, a Master’s Degree student in the University of Florida. Alejandro is passionate about the intersection between artificial intelligence and finance, and focuses on developing algorithmic trading systems.
The company mentioned in the article is OpenAI – an AI research project launched by a group of Silicon Valley entrepreneurs with the aim of setting the highest safety bar for developing beneficial AI. They focus on both the technical AI research and the long-term social impact of artificial intelligence, and have developed various state-of-the-art solutions in their field.
