One use of the NLP (natural language processing) features of ChatGPT is to search out patterns in the immense amounts of news, data and other sources of information about specific stocks, and then efficiently convert them into summaries valuable for all types of investors.  Can this be accomplished with useful results? The authors use the Q2_2023 period to test performance around earnings announcements. Earnings announcements and earnings surprises are informationally rich as well as challenging events for investors to analyze.

Can ChatGPT assist in picking stocks?

  • Matthias Pelster, Joel Val
  • Finance Research Letters
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category.

What are the research questions?

  1. Can ChatGPT analyze information obtained from the financial media and provide accurate investment insights?

What are the Academic Insights?

  1. A QUALIFIED YES. ChatGPT (and probably any LLM) provides cost-effective and valuable assistance to stock selection.   The results obtained in the live experiment conducted here included support in various ways.  First, the ratings made by ChatGPT were positively related to future out-of-sample returns on the rated stocks.   Interestingly, even in a weakly efficient market, ChatGPT provided valuable information based on a single rating.   If the ratings were a random process, the next-month average excess returns would have been zero.  Second, the LLM distinguished between positive and negative events in the news.  Further, when a negative event did occur for a specific stock, the LLM changed its “opinion”. Finally, the accuracy of the opinions and recommendations did vary over time.  This suggests that LLMs like ChatGPT and others should be viewed as “assistants” in the stock selection process, not the final judgment.

Why does it matter?

Although the experimental results presented in this research were impressive, there may be misconceptions that an LLM such as ChatGPT should provide the sole opinion for investment decisions. Having said that, it is difficult to disagree with this quote from the authors:

By providing tutoring-like support and helping to interpret data in a conversational manner, ChatGPT and similar technologies are likely to affect the decision-making processes of investors. The rapid integration of ChatGPT and similar technologies in various industries suggests that, in the future, people will more rely on information that has been retrieved, summarized, and analyzed by AI.

 The most important chart from the paper


This paper studies whether ChatGPT-4 with access to the internet is able to provide valuable investment advice and evaluate financial information in a timely manner. Using a live experiment, we find a positive correlation between ChatGPT-4 ratings and future earnings announcements and stock returns. We find evidence that ChatGPT-4 adjusts ratings in response to earnings surprises and news events information in a timely manner. An investment strategy based on ‘‘attractiveness ratings’’ by ChatGPT-4 yields positive returns.

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About the Author: Tommi Johnsen, PhD

Tommi Johnsen, PhD
Tommi Johnsen is the former Director of the Reiman School of Finance and an Emeritus Professor at the Daniels College of Business at the University of Denver. She has worked extensively as a research consultant and investment advisor for institutional investors and wealth managers in quantitative methods and portfolio construction. She taught at the graduate and undergraduate levels and published research in several areas including: capital markets, portfolio management and performance analysis, financial applications of econometrics and the analysis of equity securities. In 2019, Dr. Johnsen published “Smarter Investing” with Palgrave/Macmillan, a top 10 in business book sales for the publisher.  She received her Ph.D. from the University of Colorado at Boulder, with a major field of study in Investments and a minor in Econometrics.  Currently, Dr. Johnsen is a consultant to wealthy families/individuals, asset managers, and wealth managers.

Important Disclosures

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice.  Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).

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