Taking both long and short positions to exploit relative mispricings.
This paper shows that large language models (LLMs) can predict stock returns in China using public news. The best models—especially an ensemble of multiple LLMs and Baichuan—produce daily trading signals that generate up to 91% annualized alpha, proving highly effective in emerging markets.
This paper shows ChatGPT can act as a robo-advisor, generating stock picks from news that yield up to 3% monthly alpha, especially on political and policy-related events. Its performance beats traditional textual analysis in both U.S. and Chinese markets.
GPT-4 can create alpha. By simply prompting it with price and volume definitions, it generates factors that deliver Sharpe ratios up to 4.49 and annual returns up to 66%—without using any financial data.
This paper introduces HAID—a novel measure that captures new information in earnings call Q&As by comparing executive answers to ChatGPT’s responses. A higher HAID predicts more trading, stronger price reactions, improved analyst forecasts, and greater liquidity.
ChatGPT-based sentiment from full earnings call transcripts predicts stock returns up to six months ahead. After its democratization, retail investors’ trading aligns more closely with AI insights—narrowing the gap with informed traders.
ChatGPT can generate profitable day trading signals by analyzing real-time Twitter news and selecting stock tickers to buy and sell. The strategy earns significant intraday alpha, especially from short positions, even without firm-specific prompts.
This paper shows that hedge funds adopting ChatGPT saw a 3–5% boost in annualized returns post-2022.
This paper introduces asset embeddings—vector representations of stocks learned from investor portfolios using techniques like BERT and Word2Vec. These embeddings outperform traditional characteristics in explaining return comovement, offering a new framework for understanding investor behavior.
ChatGPT can extract forward-looking investment signals from earnings calls. The paper shows that its investment score predicts firm capex up to 9 quarters ahead and negatively forecasts future stock returns—revealing information not yet priced by markets.
Can ChatGPT predict stocks? Yes—GPT-4 applied to headlines yields a high-Sharpe intraday strategy with 650%+ returns. Predictive power emerges only in large models.
This paper shows that a simple, model-free valuation approach using all available accounting data can identify stock mispricing. A strategy that buys underpriced and sells overpriced firms earns **4–10% alpha per year**, outperforming many known anomalies—even without complex valuation models.
Short sellers face unique risks, including loan recalls and rising borrow fees. This paper shows that higher short-selling risk predicts **lower future returns**, **more mispricing**, and **less efficient prices**. These effects are stronger for trades with long expected horizons.