The Predictive Edge

Introduction

What if artificial intelligence could predict the stock market? Artificial intelligence (AI) is transforming numerous industries, and finance is no exception. Recent advances have led to sophisticated chatbots like ChatGPT with remarkable skills. The potential is enormous—if AI could predict price movements, investors would have an incredible advantage. However, while AI shows promise for finance, reliably forecasting complex financial markets is an immense challenge. The Predictive Edge examines the intriguing academic research documenting how ChatGPT can forecast stock price movements. It explains how to translate this theoretical knowledge into practical investment strategies, exploring how ChatGPT can be leveraged to predict stock prices accurately.

This book is grounded in academic research investigating a method using ChatGPT to predict whether news headlines indicate positive or negative returns for a stock. It presents the method and results in detail and provides a step‐by‐step guide to implementing the strategy, discussing practical considerations and refinements. We will follow the research and explore the promises and limitations of using natural language processing for finance.

The study's results are surprising. The strategy delivered more than 400% simulated returns in less than two years by going long on stocks with positive headlines and shorting negative headlines. In contrast, the stock market average is around 10% annually. While the research ...