Paper: arXiv 2401.05447

Abstract

We used a dataset of daily Bloomberg Financial Market Summaries from 2010 to 2023, reposted on large financial media, to determine how global news headlines may affect stock market movements using ChatGPT and a two-stage prompt approach. We document a statistically significant positive correlation between the sentiment score and future equity market returns over short to medium term, which reverts to a negative correlation over longer horizons. Validation of this correlation pattern across multiple equity markets indicates its robustness across equity regions and resilience to non-linearity, evidenced by comparison of Pearson and Spearman correlations. Finally, we provide an estimate of the optimal horizon that strikes a balance between reactivity to new information and correlation.

Complexity vs Empirical Score

  • Math Complexity: 2.5/10
  • Empirical Rigor: 6.0/10 (capped from 7.0: no out-of-sample test; see penalty flags)
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper employs basic statistical formulas and correlation analysis but lacks advanced mathematical derivations, while its strong empirical rigor is evidenced by a long-term dataset, cross-market validation, and implementation-heavy testing with real-world financial news.

Research Flowchart

  flowchart TD
  A["Research Goal<br/>Can ChatGPT compute trustworthy<br/>sentiment scores from Bloomberg Market Wraps?"] --> B
  subgraph B ["Data & Methodology"]
      B1["Bloomberg Market Summaries<br/>2010-2023"] --> B2["Two-Stage Prompt Approach<br/>(ChatGPT Sentiment Scoring)"]
      B2 --> B3["Correlation Analysis<br/>Pearson & Spearman"]
  end
  B3 --> C{"Key Findings"}
  C --> C1["Significant Positive Correlation<br/>Sentiment → Short/Medium-term Returns"]
  C --> C2["Correlation Reverts<br/>Negative over Long Horizons"]
  C --> C3["Robust Across Markets<br/>Resilient to Non-linearity"]
  C --> C4["Optimal Horizon Estimation<br/>Balances Reactivity & Correlation"]

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  420. Corporate Climate Risk: Measurements and Responses (2020) — link
  421. Selecting Mutual Funds from the Stocks They Hold: A Machine Learning Approach (2020) — link
  422. Measuring Corporate Culture Using Machine Learning (2021) — link
  423. User Interface and Firsthand Experience in Retail Investing (2021) — link
  424. Generating scholarly content with ChatGPT: ethical challenges for medical publishing (2023) — link
  425. Anti-corruption reforms and shareholder valuations: Event study evidence from China (2016)
  426. Security prices, risk, and maximal gains from diversification (1965)
  427. Investment-based expected stock returns (2009) — link
  428. The impacts of political uncertainty on asset prices: Evidence from the Bo scandal in China (2017)
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  430. Size and value in China (2019)
  431. Finbert: A pre-trained financial language representation model for financial text mining (2021)
  432. Risks and Returns of Cryptocurrency (2021) — link
  433. Financially Constrained Stock Returns (2009) — link
  434. How Constraining Are Limits to Arbitrage? (2016) — link
  435. NLTK: The Natural Language Toolkit (2002) — link
  436. Risk Factors That Matter: Textual Analysis of Risk Disclosures for the Cross-Section of Returns (2019) — link
  437. Why do managers disclose risks accurately? Textual analysis, disclosures, and risk exposures (2021) — link
  438. Do Common Factors Really Explain the Cross-Section of Stock Returns? (2022) — link
  439. Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models (2023) — link
  440. Biased assimilation and attitude polarization: The effects of prior theories on subsequently considered evidence (1979)
  441. The new issues puzzle (1995)
  442. A Wolf in Sheep’s Clothing: The Use of Ethics-Related Terms in 10-K Reports (2008) — link
  443. When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks (2011)
  444. When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10-Ks (2011) — link
  445. Measuring Readability in Financial Disclosures (2014) — link
  446. Textual Analysis in Accounting and Finance: A Survey (2016)
  447. Assimilation of oil news into prices (2019) — link
  448. Anomalies Abroad: Beyond Data Mining (2017) — link
  449. Asset prices in an exchange economy (1978)
  450. ChatGPT and a new academic reality: Artificial Intelligence-written research papers and the ethics of the large language models in scholarly publishing (2023) — link
  451. The new issues puzzle: Testing the investment-based explanation (2007)
  452. What Happens with More Funds than Stocks? Analysis of Crowding in Style Factors and Individual Equities (2021) — link
  453. The relevance of broker networks for information diffusion in the stock market (2019) — link
  454. A Random Walk Down Wall Street: including a life-cycle guide to personal investing (1996)
  455. The geography of equity analysis (2005)
  456. News implied volatility and disaster concerns (2017) — link
  457. Introduction to Information Retrieval (2008)
  458. Market efficiency in the age of big data (2022) — link
  459. Authors in the Age of Language-generation AI: To be or not to be, is that Really the Question? (2023) — link
  460. The Invisible Hand of Short Selling: Does Short Selling Discipline Earnings Management? (2015) — link
  461. Does Academic Research Destroy Stock Return Predictability? (2016) — link
  462. Arbitrage risk and post-earnings-announcement drift (2004)
  463. An Intertemporal Capital Asset Pricing Model (1973) — link
  464. On estimating the expected return on the market: An exploratory investigation (1980) — link
  465. A simple model of capital market equilibrium with incomplete information (1987)
  466. Unsophisticated arbitrageurs and market efficiency: Overreacting to a history of underreaction? (2015) — link
  467. Risk, Uncertainty, and Divergence of Opinion (1977)
  468. Bayesian checking for topic models (2011) — link
  469. Short and distort (2020) — link
  470. Behavioural bias and conflicts of interest in analyst stock recommendations (2009) — link
  471. AI IN FINTECH MARKET - GROWTH, TRENDS, COVID-19 IMPACT, AND FORECASTS (2023 - 2028) (2022)
  472. Do industries explain momentum? (1999) — link
  473. Equilibrium in a capital asset market (1966)
  474. The Choice of Valuation Techniques in Practice: Education versus Profession (2016) — link
  475. Short sales, institutional investors and the cross-section of stock returns (2005) — link
  476. Empirical cross-sectional asset pricing (2013)
  477. Do Measures of Investor Sentiment Predict Returns? (1998)
  478. The revival of the Gini importance? (2018) — link
  479. A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix (1987)
  480. Automatic evaluation of topic coherence (2010)
  481. Operating leverage (2010)
  482. Is momentum really momentum? (2012)
  483. The other side of value: The gross profitability premium (2013)
  484. Predicting anomaly performance with politics, the weather, global warming, sunspots, and the stars (2014) — link
  485. Experimental Evidence on the Productivity Effects of Generative Artificial Intelligence (2023) — link
  486. Volume, volatility, price, and profit when all traders are above average (1998)
  487. Dotcom mania: The rise and fall of internet stock prices (2003)
  488. Determining the number of factors from empirical distribution of eigenvalues (2010) — link
  489. GPT-4 Technical Report (2023) — link
  490. Bi-cross-validation for factor analysis (2016) — link
  491. Robust Action and the Rise of the Medici, 1400-1434 (2015) — link
  492. Speculation with Information Disclosure (2021) — link
  493. Liquidity risk and expected stock returns (2003)
  494. Uncertainty about government policy and stock prices (2012)
  495. Does Beta Move with News? Firm-Specific Information Flows and Learning about Profitability (2012) — link
  496. Deploying Narrative Economics to Understand Financial Market Dynamics: An Analysis of Activist Short Sellers’ Rhetoric* (2021) — link
  497. Understanding Systematic Risk: A High-Frequency Approach (2020) — link
  498. Understanding Alpha Decay (2022) — link
  499. Firm size and cyclical variations in stock returns (2000)
  500. Dealing with structural breaks (2006)
  501. Estimating restricted structural change models (2006)
  502. Deep Contextualized Word Representations (2018) — link
  503. Is value riskier than growth? (2005)
  504. Housing, consumption and asset pricing (2007)
  505. Does corporate headquarters location matter for stock returns? (2006)
  506. 2021 ANNUAL Fintech Report (2022) — link
  507. Costly arbitrage: evidence from closed-end funds (1996)
  508. Costly arbitrage and the myth of idiosyncratic risk (2006) — link
  509. Share issuance and cross-sectional returns (2008)
  510. Aspect extraction for opinion mining with a deep convolutional neural network (2016)
  511. A review of affective computing: From unimodal analysis to multimodal fusion (2017)
  512. Underreaction, overreaction, and increasing misreaction to information in the options market (2001) — link
  513. An Agnostic and Practically Useful Estimator of the Stochastic Discount Factor (2020) — link
  514. Estimating and testing structural changes in multivariate regressions (2007)
  515. Improving language understanding by generative pre-training (2018)
  516. Language models are unsupervised multitask learners (2019)
  517. ChatGPT and Publication Ethics (2023) — link
  518. International stock return predictability: What is the role of the united states? (2013) — link
  519. ChatGPT: A comprehensive review on background, applications, key challenges, bias, ethics, limitations and future scope (2023) — link
  520. Software Framework for Topic Modelling with Large Corpora (2010) — link
  521. Marketing with ChatGPT: Navigating the Ethical Terrain of GPT-Based Chatbot Technology (2023) — link
  522. Writing effective risk factor disclosure in offering documents and exchange reports (2005)
  523. Exploring the space of topic coherence measures (2015) — link
  524. A critique of the asset pricing theory’s tests Part I: On past and potential testability of the theory (1977) — link
  525. An Empirical Investigation of the Arbitrage Pricing Theory (1980) — link
  526. On the cross-sectional relation between expected returns and betas (1994)
  527. Extra-Market Components of Covariance in Security Returns (1974) — link
  528. Persuasive evidence of market inefficiency (1985)
  529. The arbitrage theory of capital asset pricing (1976) — link
  530. Are Item 1A Risk Factors Priced? (2019) — link
  531. ChatGPT utility in healthcare education, research, and practice: systematic review on the promising perspectives and valid concerns (2023)
  532. ChatGPT Utility in Healthcare Education, Research, and Practice: Systematic Review on the Promising Perspectives and Valid Concerns (2023) — link
  533. The Utility of ChatGPT as an Example of Large Language Models in Healthcare Education, Research and Practice: Systematic Review on the Future Perspectives and Potential Limitations (2023) — link
  534. Multiples for Valuation Estimates of Companies in the Technology Sector of Emerging Markets (2017) — link
  535. The presidential puzzle: Political cycles and the stock market (2003)
  536. Labor income and predictable stock returns (2005)
  537. Bloom: A 176b-parameter open-access multilingual language model (2022) — link
  538. Analyst Disagreement, Forecast Bias and Stock Returns (2004)
  539. Suppressed Negative Information and Future Underperformance* (2007) — link
  540. Investor sentiment and stock returns: Some international evidence (2009)
  541. Stock Market Rumors and Credibility (2020) — link
  542. Deep Copyright: Up - And Downstream Questions Related to Artificial Intelligence (AI) and Machine Learning (ML) (2018) — link
  543. Valuation with Multiples: A Conceptual Analysis (2020) — link
  544. What Makes Short Selling Risky: Other Short Sellers (2020) — link
  545. Textual analysis of stock market prediction using breaking financial news: The AZFin text system (2009)
  546. On the estimation of beta-pricing models (1992)
  547. Capital asset prices: A theory of market equilibrium under conditions of risk (1964)
  548. Mutual Fund Performance (1966) — link
  549. Investor sentiment and economic forces (2017)
  550. Female Representation in the Academic Finance Profession (2022) — link
  551. Irrational Exuberance (2000)
  552. From efficient market theory to behavioral finance (2003)
  553. Narrative Economics (2017) — link
  554. Corruption (1993)
  555. Politicians and firms (1994)
  556. The limits of arbitrage (1997)
  557. Sequential Tests of the Arbitrage Pricing Theory: A Comparison of Principal Components and Maximum Likelihood Factors (1990) — link
  558. Explaining and predicting online review helpfulness: The role of content and reviewer-related signals (2018)
  559. Israeli co Similarweb files for NYSE IPO (2021)
  560. Why Firms Voluntarily Disclose Bad News (1994) — link
  561. Earnings disclosures and stockholder lawsuits (1997) — link
  562. Do stock prices fully reflect information in accruals and cash flows about future earnings? (1996)
  563. A new approach to predicting analyst forecast errors: Do investors overweight analyst forecasts? (2013)
  564. Big Data and Artificial Intelligence in Digital Finance: Increasing Personalization and Trust in Digital Finance Using Big Data and AI (2022)
  565. Risks in China’s financial system (2018)
  566. The short of it: Investor sentiment and anomalies (2012)
  567. The long of it: Odds that investor sentiment spuriously predicts anomaly returns (2014) — link
  568. Arbitrage asymmetry and the idiosyncratic volatility puzzle (2015)
  569. Mispricing factors (2017) — link
  570. Rational capital budgeting in an irrational world (1996) — link
  571. Exploring topic coherence over many models and many topics (2012) — link
  572. Full-Text or abstract? Examining topic coherence scores using latent dirichlet allocation (2017) — link
  573. Deep Representation Learning for Social Network Analysis (2019) — link
  574. News-Based Peers and Stock Returns (2020) — link
  575. The geography of hedge funds (2009)
  576. Giving Content to Investor Sentiment: The Role of Media in the Stock Market (2007) — link
  577. More Than Words: Quantifying Language to Measure Firms’ Fundamentals (2008) — link
  578. Does Public Financial News Resolve Asymmetric Information? (2010) — link
  579. All the News That’s Fit to Reprint: Do Investors React to Stale Information? (2011) — link
  580. Inventory changes and future returns (2002)
  581. Lamda: Language models for dialog applications (2022) — link
  582. ChatGPT is fun, but not an author (2023) — link
  583. Regression Shrinkage and Selection via the Lasso (1996) — link
  584. Chatgpt-4 outperforms experts and crowd workers in annotating political twitter messages with zero-shot learning (2023) — link
  585. Local risk, local factors, and asset prices (2017)
  586. Strategic Default, Debt Structure, and Stock Returns (2016) — link
  587. The term structure of returns: Facts and theory (2017) — link
  588. Real Anomalies (2019) — link
  589. Duration-Based Stock Valuation: Reassessing Stock Market Performance and Volatility (2020) — link
  590. Man versus Machine Learning: The Term Structure of Earnings Expectations and Conditional Biases (2023) — link
  591. Attention is all you need (2017) — link
  592. Insider Sales under the Threat of Short Sellers: New Hypothesis and New Tests (2018) — link
  593. Shorting flows, public disclosure, and market efficiency (2020) — link
  594. Equity market misvaluation, financing, and investment (2016) — link
  595. The Impact of Artificial Intelligence on the Labor Market (2019) — link
  596. Cash flow duration and the term structure of equity returns (2018) — link
  597. Transformers: State-of-the-art natural language processing (2020)
  598. “What Can ChatGPT Do?” Analyzing Early Reactions to the Innovative AI Chatbot on Twitter (2023) — link
  599. Tweeting in the Dark: Corporate Tweeting and Information Diffusion (2020) — link
  600. Post-Apocalyptic: The Real Consequences of Activist Short-Selling (2017) — link
  601. Econometric Analysis of Cross Section and Panel Data (2010) — link
  602. A Cross-Sectional Machine Learning Approach for Hedge Fund Return Prediction and Selection (2020) — link
  603. BloombergGPT: A Large Language Model for Finance (2023) — link
  604. BloombergGPT: A Large Language Model for Finance (2023) — link
  605. Does arbitrage flatten demand curves for stocks? (2002)
  606. PIXIU: A Large Language Model, Instruction Data and Evaluation Benchmark for Finance (2023) — link
  607. The Wall Street Neophyte: A Zero-Shot Analysis of ChatGPT Over MultiModal Stock Movement Prediction Challenges — → 2304.05351
  608. Interpreting the value effect through the Q-theory: An empirical investigation (2007)
  609. Fundamental Analysis and the Cross-Section of Stock Returns: A Data-Mining Approach (2017) — link
  610. Large language models can rate news outlet credibility (2023) — link
  611. A Consumption-Based Explanation of Expected Stock Returns (2006) — link
  612. Investor sentiment and the mean-variance relation (2011)
  613. Democratizing financial knowledge with ChatGPT by OpenAI: Unleashing the Power of Technology (2023)
  614. The Value Premium (2005) — link
  615. Manager Uncertainty and the Cross-Section of Stock Returns (2020) — link
  616. Activist Short-Selling and Corporate Opacity (2020) — link
  617. Measuring investor sentiment (2018)
  618. Exploring AI Ethics of ChatGPT: A Diagnostic Analysis (2023) — link
  619. Zero-shot information extraction via chatting with chatgpt (2023) — link
  620. ChatGPT: Jack of all trades, master of none (2023)
  621. Can chatgpt forecast stock price movements? return predictability and large language models — → 2304.07619
  622. Control of the false discovery rate in multiple testing under dependency (2001)
  623. NLP analytics in finance with DoRe: a French 250M tokens corpus of corporate annual reports (2020) — link
  624. Design and evaluation of SentiEcon: A fine-grained economic/financial sentiment lexicon from a corpus of business news (2020) — link
  625. Target-based sentiment annotation in Chinese financial news (2020) — link
  626. Sedar: a large scale French-english financial domain parallel corpus (2020) — link
  627. A French corpus and annotation schema for named entity recognition and relation extraction of financial news (2020) — link
  628. Fundamentals of Modern Statistical Methods: Substantially Improving Power and Accuracy (2010)
  629. Investigating the Relationship Between Romanian Financial News and Closing Prices from the Bucharest Stock Exchange (2022) — link
  630. A Graph-Based Method for Unsupervised Knowledge Discovery from Financial Texts (2022) — link
  631. Finmath: Injecting a tree-structured solver for question answering over financial reports (2022) — link
  632. CoFiF Plus: A French Financial Narrative Summarisation Corpus (2022) — link
  633. ChatGPT-based Investment Portfolio Selection — → 2308.06260
  634. Bloated Disclosures: Can ChatGPT Help Investors Process Financial Information? (2023) — link
  635. Performance measurement in a downside risk framework (1994)
  636. What triggers stock market jumps? (2021)
  637. Time your hedge with Deep Reinforcement Learning (2020)
  638. Adaptive learning for financial markets mixing model-based and model-free RL for volatility targeting (2021)

3 of 646 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.