ChatGPT: How AI Is Helping People Make More Informed Financial Decisions

Sunday - April 30 2023, 11:28 UTC - 1 year ago

AI can be used for a variety of applications in finance, including sentiment analysis and tailored financial guidance. AI models can help to predict stock prices, decipher monetary policy announcements, and create an optimal financial portfolio, providing valuable insights and helping people make more informed investment decisions.

From chatbots and virtual assistants to fraud detection and risk management, artificial intelligence (AI) is now being used in many areas of finance. But what could an AI system like ChatGPT do for your bank balance?AI tools might seem overly complex or expensive to non-experts, but advances in natural language processing and machine learning could turn ChatGPT and similar products into virtual personal finance assistants. This would mean having an expert on hand to help you make sense of the latest financial news and data.

Staying on top of business news and financial market trends is important for making informed investment decisions and gaining an edge in the markets. Companies already use these tools to perform what finance professionals call "sentiment analysis." .

This involves analyzing financial news and statements to generate insights and predictions for investors about shares and other investments. For example, Morgan Stanley's AI models analyze a wide range of data—including news articles, social media posts and financial statements—to identify patterns and predict stock prices.

Researchers have started to explore the potential of AI tools like ChatGPT, but given how new this technology is, much of the academic research remains in the early stages. A recent preprint study, the results of which have not been reviewed by other academics, tested ChatGPT's predictions about stock market performance based on sentiment analysis of news headlines.

ChatGPT determines if a headline is good, bad or irrelevant for a firm's stock prices and computes a score. This research found a high correlation between ChatGPT's responses and stock market movements, showing some ability to predict the direction of returns.

AI tools may also be able to help investors decipher monetary policy announcements, providing insights into their potential effects on financial markets. Another recent preprint evaluated ChatGPT's ability to understand what announcements from the US central bank, the Federal Reserve, might mean for financial markets.

It compared this to professional investors' efforts to do the same. The study found that, particularly when ChatGPT models are fine tuned, they are more accurate than other machine learning models used by professionals to analyze and understand "Fedspeak." .

Monetary policy decisions, such as interest rates or asset purchase programs, can have a big effect on financial markets. So AI's ability to assess what central bank announcements on policy changes will mean for financial markets could provide valuable insights into the effects of these actions. This could help you make more informed investment decisions.

The ability to identify trends in specific market sectors could also be helpful for people seeking more tailored financial guidance.

For example, an AI tool could be used to analyze financial data, such as balance sheets and income statements, from technology companies. It could identify patterns that might indicate opportunities or problems. An investor could then adjust their portfolio, potentially increasing returns or even just helping to reduce exposure to certain risks.

In addition to analyzing market trends, AI could also be used to build an investment portfolio tailored to an individual's specific financial situation and goals. For example, tools could be used to assess risk, creating portfolios with optimized risk profiles.

AI can be trained to assess how portfolio changes such as asset mix and target returns will affect a person's long-term goals. An efficient portfolio is one that balances risk and return and has a high chance of achieving targets—in this case, an optimal financial future.