We speak with University of Florida Professor of Finance Alejandro Lopez-Lira, who was worked extensively with this new technology and recently authored the paper "Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models".
We discuss how ChatGPT works, its potential future impact on investing and what his research showed with respect to its ability to predict short-term stock price movements. We also take some time at the end to cover some of his other interesting asset pricing research.
00:00 - Intro
03:57 - What is a large language model and how does ChatGPT work?
07:17 - What areas of investing might ChatGPT be most useful for?
10:04 - The investing jobs ChatGPT is likely to disrupt the most
12:16 - A summary of Alejandro's paper
13:44 - How he determined the news sources to use in the paper
15:50 - The importance of using good prompts with ChatGPT
18:19 - Using ChatGPT to determine if news is positive or negative
22:20 - Can ChatGPT predict stock performance?
24:34 - How the results compare to traditional sentiment analysis
26:47 - How the results differed with different versions of ChatGPT
28:38 - What AI means for the future of stock picking?
31:38 - The biggest risks of AI
34:48 - Does ChatGPT verify if information is correct?
38:48 - Alejandro's paper "Do Common Factors Really Explain the Cross-Section of Stock Returns?"
51:49 - The one lesson Alejandro would teach the average investor
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