ChatGPT has displayed an ability to anticipate stock market moves based on corporate news and is capable of understanding Federal Reserve statements, according to a pair of studies.
The first study, conducted at the Richmond Fed, found that ChatGPT-4 is capable of sorting statements from the Fed into five categories in a manner that aligns closely with human readers, Business Insider reported.
Researchers tasked the AI chatbot with classifying Fed statements as dovish, mostly dovish, neutral, mostly hawkish or hawkish. The result beat other AI models in matching designations by human readers.
"The sentence indicates the committee's expectation to start implementing its balance sheet normalization program soon, which is a clear signal of tightening monetary policy, as long as the economy evolves as anticipated," GPT-4 wrote of one statement it deemed hawkish, according to Business Insider.
Another study from the University of Florida examined ChatGPT's ability to anticipate stock market moves based on public corporate news, and found that the AI's latest version displayed a strong ability to predict moves.
"We use ChatGPT to indicate whether a given headline is good, bad, or irrelevant news for firms' stock prices. We then compute a numerical score and document a positive correlation between these ‘ChatGPT scores’ and subsequent daily stock market returns," the researchers wrote. "Further, ChatGPT outperforms traditional sentiment analysis methods. We find that more basic models such as GPT-1, GPT-2, and BERT [an existing finance model] cannot accurately forecast returns."
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The team went on to say that incorporating AI analysis into trading strategies is likely to become the norm.
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ChatGPT and other similar language model AIs have burst onto the scene in recent months, and many businesses have begun exploring how they might be used.
