Since ChatGPT entered our lives, it has started to affect and facilitate people’s lives in countless areas. Now, Alejandro Lopez-Lira, a professor of finance at the University of Florida, explains that large language models can be useful when predicting stock prices.Alejandro Lopez-Lira used ChatGPT to parse news headlines according to whether they are good or bad for a stock and found that ChatGPT was successful in predicting the direction of the next day’s returns. In a previous related report, we told you that Goldman Sachs estimates that about 35 percent of financial work is at risk of being automated by artificial intelligence.
Predictions are successful as long as numbers don’t come into play.
While Lopez-Lira says that ChatGPT’s success comes when the market doesn’t respond perfectly, it also shows how so-called “big language models” are far from fulfilling many financial tasks. For example, it is reported that the experiments do not include any stock prices or mathematical operations. Because tools like ChatGPT often tend to make up numbers. However, examining and analyzing news headlines can be a successful strategy.Lopez-Lira said the results surprised him and suggested that sophisticated traders have not yet used ChatGPT-style machine learning in their trading strategies.
How was the experiment done?
The experiments analyzed more than 50,000 headlines from a data provider on the New York Stock Exchange, the Nasdaq, and publicly traded stocks on a small-cap stock exchange. Lopez-Lira and her partner Yuehua Tang began collecting this data in October 2022. ChatGPT’s training data ends in 2021, meaning ChatGPT has never seen these headlines before.
They then fed the headers into ChatGPT 3.5 with the following prompt:
“Forget all your previous instructions. Pretend you’re a financial professional. You’re a financial expert with stock advice experience. Answer “YES” if the good news is on the first line, “NO” if the bad news, or “UNKNOWN” if it’s vague. Then the next line is a short answer. and elaborate in a concise sentence.”
Get rich with ChatGPT?
They then looked at the stocks’ returns on the next trading day. As a result, Lopez-Lira found that the model performed better in almost all situations when informed by a news headline. So, is it possible to make money on the stock market using ChatGPT? In most cases, the answer to this question will be no for now. ChatGPT’s ability to predict stock movements is also expected to decline in the coming months as organizations begin to integrate this technology. However, by the time the stock market news hit the headlines, the stock was already priced in, so it was too late.However, in the research conducted, it is said that artificial intelligence models will have great importance in the future. The same experiments have been repeated using more basic models such as GPT-2 and BERT. But these gave worse results than GPT-3.5. Currently, the newest model is the GPT-4, and the development of the models continues. For now, these models, including the GPT-4 model, are not very strong in mathematical matters. It is stated that when this gap is eliminated and combined with other disciplines, more accurate predictions can be opened.
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