Can ChatGPT beat humans in picking stocks? Study says 'Yes'
artificial intelligence (AI) world and we are all living in it. The growing might of advanced AI technologies, with the advent of ChatGPT and many other language models, has touched the financial world in many ways than one had imagined.
A recent paper published by three scholars from the University of Chicago school of business found that large language models can analyse financial statements of companies and forecast earnings potential, which were said to be more accurate than analysts' estimates. The report was first published in The Financial Times.
The research paper titled «Financial Statement Analysis with Large Language Models» looked at whether these models make informed financial decisions or are they simply a support tool.
In this pretext, the study analysed the AI's ability to successfully perform financial statement analysis in a way similar to what professional human analysts do.
The scholars (Alex Kim, Maximilian Muhn and Valeri Nikolaev) provided ChatGPT with structured and anonymized financial statements of over 15,000 companies and a sophisticated chain-of-thought prompt that mimics how human analysts process financial information.
The prompts included asking the model to create economic narratives on the analysed financial statements and also asking it to predict earnings of the companies in the next one year.
The paper revealed that the language model was accurately predicting the earnings about 60% of the time after prompting, as compared to human predictions, which were spot on about 57%.
