Yes, AI is going to take your job
Just a few months ago, an MIT paper by Andrew W. Lo and Jillian Ross discussed Generative AI and Financial Advice in a case study. It certainly made our industry sit up and take notice – “An LLM (Large Language Model) can role-play a financial advisor convincingly and often accurately for a client,” they wrote.
Even more concerningly the authors contended that AI can be trained to synthesise a personality that clients will find engaging, with the caveat “even the largest language model currently appears to lack the sense of responsibility and ethics required by law from a human financial advisor.”
And now, it’s time for analysts to be alarmed. A brand new study from the University of Chicago Booth School of Business, researchers Alex G. Kim, Maximilian Muhn, and Valeri V. Nikolaev reveals that large language models (LLMs), specifically GPT-4, can outperform human financial analysts in predicting earnings changes from financial statements.
The report authors used Chat GPT-4 turbo for their research and tried to anonymize data as much as possible –their results found that the AI’s results accuracy was “remarkably higher than that achieved by the analysts.”
“Finally, we explore the economic usefulness of GPT’s forecasts by analyzing their value in predicting stock price movements,” they said in their study. “We find that the long-short strategy based on GPT forecasts outperforms the market and generates significant alphas and Sharpe ratios. For example, alpha in the Fama-French three-factor model exceeds 12% per year.”
But what does that mean for us?
The findings of this study suggest that we could see significant shift in the role of financial advisors in our lifetimes, making it important that we learn how to use the
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