AI excitement has always been seasoned with a fair bit of angst about jobs. God forbid that those jobs might affect you. Hopefully it will be someone else’s problem. 

But for the humble financial analyst, I’m afraid there are indeed some scribbles on the wall. AI might be better than humans at picking stocks.  

In a new study, researchers fed financial statements to GPT-4 and found that it outperforms financial analysts in predicting the sign of earnings changes.  

This was achieved despite only feeding Large Language Model (LLM) with numbers, omitting any textual context.  

“Even without any narrative or industry-specific information, the LLM outperforms financial analysts in its ability to predict earnings changes,” the researchers write. 

Moreover, the AI’s earnings predictions seem to contain predictive power for future stock returns. 

“We develop a Chain-of-Thought (CoT) prompt that effectively ‘teaches’ the model to mimic a financial analyst,” explain researchers Alex Kim, Maximillian Muhn and Valeri V. Nikolaev. 

The study from the team at the University of Chicago Booth School of Business highlights the potential role that AI could play in the investment world. 

They pose a simple question: Can large language models (LLMs) make informed financial decisions or are they simply a support tool? 

The LLM “generates useful narrative insights about a company’s future performance”, whilst trading strategies based on GPT’s predictions yield a higher Sharpe ratio and alphas than strategies based on other models.  

“Overall, our analysis suggests that GPT shows a remarkable aptitude for financial statement analysis.” 

Neil Wilson

Chief Market Analyst at Finalto

All opinions, news, research, analysis, prices or other information is provided as general market commentary and not as investment advice and all potential results discussed are not guaranteed to be achieved. The information may have been derived from publicly available sources, company reports, personal research, or surveys. Past performance is not indicative of future performance. Trading carries risk of capital loss. Service available to professional clients only.