ChatGPT and the Stock Market

Abstract

The launch of ChatGPT led to increased stock market trading and reduced return volatility, especially for larger and older firms (high-info firms). ChatGPT also improved these firms' liquidity and price efficiency through its impact on trading and volatility. In addition, ChatGPT improved the accuracy of analysts' earnings forecasts, reducing earnings surprises for these firms. Although smaller earnings surprises result in smaller abnormal returns during the announcement period, the abnormal return per unit of earnings surprise is larger after the ChatGPT launch, suggesting a more significant information content of the earnings announcement. High-info firms also exhibit stronger effects of ChatGPT on trading volume and order imbalance following earnings announcements.  

Keywords: Market microstructure, Liquidity, Price efficiency, Earnings announcements, Retail trades, Forecast errors, Abnormal returns, Trading volume, Volatility

JEL Classification: G12, G14