ChatGPT, Stock Market Predictability and Links to the Macroeconomy

70 Pages Posted: 20 Dec 2023 Last revised: 18 Apr 2024

See all articles by Jian Chen

Jian Chen

Xiamen University - School of Economics

Guohao Tang

Hunan University - College of Finance and Statistics

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Wu Zhu

School of Economics and Management, Tsinghua University

Date Written: July 31, 2023

Abstract

We find that good news extracted by ChatGPT from the front pages of Wall Street Journal can predict the stock market and is related to macroeconomic conditions. Consistent with existing theories, investors tend to underreact to positive news, especially during periods of economic downturns, high information uncertainty and high novelty of news. In contrast, the negative news is only associated with contemporaneous returns. Traditional methods of textual analysis, such as word lists and large language models like BERT, can barely find any predictability. In short, ChatGPT appears the best AI in discerning economic-related news that drive the stock market.

Keywords: LLMs, ChatGPT, Textual Analysis, NLP, Return Predictability

JEL Classification: C22, C53, G11, G12, G17

Suggested Citation

Chen, Jian and Tang, Guohao and Zhou, Guofu and Zhu, Wu, ChatGPT, Stock Market Predictability and Links to the Macroeconomy (July 31, 2023). Olin Business School Center for Finance & Accounting Research Paper No. Forthcoming, Available at SSRN: https://ssrn.com/abstract=4660148 or http://dx.doi.org/10.2139/ssrn.4660148

Jian Chen

Xiamen University - School of Economics ( email )

422 Siming Nan Road
Xiamen, Fujian 361005
China

Guohao Tang

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410006
China

Guofu Zhou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

Wu Zhu

School of Economics and Management, Tsinghua University ( email )

Beijing, PA 19104
China

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