Two recent studies suggest that the artificial-intelligence (AI) chatbot ChatGPT may be able to predict the fluctuations of the stock market and understand releases from the Federal Reserve.
- Two studies, one from the Richmond Federal Reserve and the other from the University of Florida, found that ChatGPT-4 may be capable of a human-like understanding of the Fed and stock market.
- Richmond Fed’s study asked the AI chatbot to classify Fed statements as dovish, neutral, or hawkish. It did so successfully, and in fact beat human readers.
- The University of Florida’s study asked ChatGPT to anticipate stock-market changes based on corporate news, which it did with some success, Fox News reports.
Why it’s news
With new developments in AI, researchers have been looking for potential ways to harness the chatbot’s abilities. Using AI to develop trading strategies could become the norm if ChatGPT provides consistent results.
Wall Street experts have used language models similar to ChatGPT for years to inform many of their trading strategies, but ChatGPT’s abilities bring a new level of nuance to the information available.
In the Richmond Fed study, researchers found ChatGPT could beat an already popular language model from Google called BERT. Beyond making correct classifications, ChatGPT could also explain its answers similarly to the Fed’s analyst, Bloomberg reports.
For example, ChatGPT was shown this statement from May 2013: “Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated.”
ChatGPT responded that the statement was dovish because the economy still had some ways to go before recovering—a similar conclusion to the human analyst.
In the University of Florida study, ChatGPT was asked to analyze headlines and predict how the news would affect the stock price of a given company. For example, one headline read, “Rimini Street Fined $630,000 in Case Against Oracle.” ChatGPT determined that the news was positive for Oracle because the penalty “could potentially boost investor confidence in Oracle’s ability to protect its intellectual property and increase demand for its products and services.”
While machines being able to interpret information better than people is no surprise, ChatGPT may be able to speed up the existing process on Wall Street. Existing language models take more detailed and labor-intensive training to become accurate. ChatGPT may be able to perform the same tasks as existing tools without all the training, however, it still needs some adjustments before it can truly be reliable, Bloomberg reports.