Can ChatGPT Forecast Stock Price Movements?

Summary

Predicting stock market trends has been a long‐standing quest in finance. Investors and analysts have traditionally relied on various methods to predict stock movements, including fundamental analysis, technical analysis, and quantitative models. However, large language models (LLMs) like ChatGPT have begun to transform this landscape dramatically. This chapter examines an empirical study (coauthored with Yue‐hua Tang) that explores whether ChatGPT can predict stock returns using news headlines (Lopez‐Lira and Tang 2023). The study is motivated by a significant shift in the AI landscape, marked by the emergence of advanced LLMs capable of understanding and generating human‐like text. In finance, news and public sentiment play critical roles in influencing stock prices. The chapter also compares ChatGPT against other LLMs and traditional sentiment analysis methods to understand which models have true potential for stock forecasting.