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GPT-4 is better than humans at financial predictions, new study shows
The human-shaped robot Ameca of Engineered Arts interacts with visitors on July 6, 2023, in Geneva, Switzerland.Johannes Simon/Getty Images
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OpenAI’s GPT-4 is better than humans at analyzing financial statements and making forecasts, according to a new study.
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“Even without any industry-specific narrative or information, LLM outperforms financial analysts in its ability to predict earnings changes,” the study concluded.
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Trading strategies based on GPT-4 also provided more profitable results than the stock market.
OpenAI’s GPT-4 has proven to be a better financial analyst than humans, according to a new study.
The findings could harm the financial services industry, which, like other business sectors, is rushing to adopt generative AI technologies.
According to the study conducted by the University of Chicago Booth School of Business, the big language model did a better job of analyzing financial statements and making predictions based on those statements.
“Even without any industry-specific narrative or information, LLM outperforms financial analysts in its ability to predict earnings changes,” the study stated. “LLM has a relative advantage over human analysts in situations where analysts tend to struggle.”
The study used “chain of thought” instructions that directed GPT-4 to identify trends in financial statements and calculate different financial ratios. From there, the large language model analyzed the information and predicted future profit results.
“When we use the chain of thought to emulate human reasoning, we find that GPT achieves an accuracy of 60%, which is notably higher than that achieved by analysts,” the study said. Human forecasters were closer to the low 50% range when it came to forecast accuracy.
The ability of large language models to recognize financial patterns and business concepts with incomplete information suggests that technology is expected to play a key role in financial decision-making in the future, according to the study authors.
Ultimately, the study found that applying GPT-4’s financial acumen to trading strategies produced more profitable trades with higher participation and alpha ratios that ultimately outperformed the stock market.
“We found that the long-short strategy based on GPT forecasts outperforms the market and generates significant alphas and Sharpe ratios,” the study said.
Read the original article at Business Insider