ChatGPT generative AI comes into play.
Studies have found that ChatGPT can reliably predict stock market trends and achieve a staggering 500% return in simulated trading from October 2021 to December 2022, outperforming the returns of hedge funds using traditional sentiment analysis models. The research team took a rigorous approach to backtesting the effectiveness of ChatGPT-driven trading strategies and found that ChatGPT was competitive relative to other language models and traditional sentiment analysis methods, when benchmarked against other methods such as sentiment analysis and older language models such as GPT-1, GPT-2, and BERT.
ChatGPT has consistently shown competitiveness, with traditional sentiment analysis methods producing significantly poorer results across all investment strategies, while GPT1, GPT-2, and BERT fail to accurately predict returns. The powerful advantage ChatGPT has shown in understanding headlines and their meanings could spark a new arms race as funds compete for the advantage of generative AI.
ChatGPT's powerful natural language processing capabilities could also threaten businesses that have developed their own proprietary sentiment analysis machine learning models that could be replaced by a simple Chat, GPT prompt.
The advantages that ChatGPT has shown in stock selection may also give retail traders more power. ChatGPT can help aspiring retail traders achieve excess returns with its ability to infer nuances and second-order meanings just by understanding the title. Investors expect the financial sector to be very active in the coming years when generative AI comes into play.
Technology-focused ARK Investment Management is particularly bullish on this trend, predicting artificial intelligence as one of the trends defining this technological era in her 2023 Big Ideas report, ARK's founder Wood.
