ChatGPT is a natural language processing technology, developed by OpenAI, which is able to analyze text-based data and anticipate stock moves. Its application in the financial world has recently started to gain traction, and two new studies have recently been released that apply the technology to relevant market tasks. One focuses on deciphering Federal Reserve statements, while the other examines whether headlines carry positive or negative implications for the stock market.
The first paper, Can ChatGPT Decipher Fedspeak?, tested OpenAI’s chatbot against a commonly used model from Google, called BERT, and datasets from dictionaries. Results showed that ChatGPT outperformed other methods in assessing the hawkishness or dovishness of statements from the Federal Reserve. The chatbot was also able to explain why interpretations of certain key phrases coincided with human analysis, such as its interpretation of the sentence “Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated.”.
In the second paper titled Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models, researchers Alejandro Lopez-Lira and Yuehua Tang at the University of Florida used OpenAI’s chatbot to assess corporate news headlines. They focused on headlines that appeared after late 2020 and found that the technology was able to consistently distinguish whether the news was good or bad for a particular stock.
Overall, the research findings suggest that ChatGPT has advanced significantly in terms of its ability to process linguistic data, and the technology could potentially open new opportunities on Wall Street. Major firms such as Man AHL have already been using natural language processing to read materials like earnings transcripts and posts from Reddit for years. However, with the advancements made by ChatGPT and other technologies, this type of analysis could be used even more to generate trading signals.
OpenAI is a San Francisco-based research firm founded in 2015 by Tesla CEO Elon Musk and Y Combinator president Sam Altman. The company focuses on developing artificial general intelligence (AGI) such as its signature product, GPT-3, which is applying its AI language model to advance financial analysis. This technology is now being used in ChatGPT to predict stock movements and interpret news headlines. Slavi Marinov, who serves as head of machine learning at Man AHL, believes that the hype surrounding OpenAI’s products is justified and that this technology could revolutionize financial analysis.
