GPT-4 as Stock Ranker

Can the large language model GPT-4 help investors make investment decisions? In their October 2023 paper entitled “Can ChatGPT Assist in Picking Stocks?”, Matthias Pelster and Joel Val conduct a live test during the 2023 second quarter earnings announcements of the value and timeliness of investment advice from GPT-4 augmented with WebChatGPT for internet access. They ask GPT-4 for two separate series of ratings for each S&P 500 firm over approximately two months:

1. Considering all available information from news outlets and social media discussions, provide on a scale from -5 to +5 a forecast for the next earnings announcement.
2. Rate on a scale from -5 to +5 the attractiveness of the stock of each firm over the next month.

They apply these two series to assess the accuracy of GPT-4 earnings forecasts and the response of its stock attractiveness ratings to news. They also measure 30-day future returns of equal-weighted portfolios based on GPT-4 attractiveness ratings, reformed with each ratings update. Using the two series of GPT-4 ratings during July 5, 2023 through  September 8, 2023, they find that: (more…)