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Can Large Language Models Beat Wall Street? Unveiling the Potential of AI in Stock Selection

Author

Listed:
  • Georgios Fatouros
  • Konstantinos Metaxas
  • John Soldatos
  • Dimosthenis Kyriazis

Abstract

This paper introduces MarketSenseAI, an innovative framework leveraging GPT-4's advanced reasoning for selecting stocks in financial markets. By integrating Chain of Thought and In-Context Learning, MarketSenseAI analyzes diverse data sources, including market trends, news, fundamentals, and macroeconomic factors, to emulate expert investment decision-making. The development, implementation, and validation of the framework are elaborately discussed, underscoring its capability to generate actionable and interpretable investment signals. A notable feature of this work is employing GPT-4 both as a predictive mechanism and signal evaluator, revealing the significant impact of the AI-generated explanations on signal accuracy, reliability and acceptance. Through empirical testing on the competitive S&P 100 stocks over a 15-month period, MarketSenseAI demonstrated exceptional performance, delivering excess alpha of 10% to 30% and achieving a cumulative return of up to 72% over the period, while maintaining a risk profile comparable to the broader market. Our findings highlight the transformative potential of Large Language Models in financial decision-making, marking a significant leap in integrating generative AI into financial analytics and investment strategies.

Suggested Citation

  • Georgios Fatouros & Konstantinos Metaxas & John Soldatos & Dimosthenis Kyriazis, 2024. "Can Large Language Models Beat Wall Street? Unveiling the Potential of AI in Stock Selection," Papers 2401.03737, arXiv.org, revised Apr 2024.
    • Handle: RePEc:arx:papers:2401.03737
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    References listed on IDEAS

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    Cited by:

    1. Han Ding & Yinheng Li & Junhao Wang & Hang Chen, 2024. "Large Language Model Agent in Financial Trading: A Survey," Papers 2408.06361, arXiv.org.
    2. Kassiani Papasotiriou & Srijan Sood & Shayleen Reynolds & Tucker Balch, 2024. "AI in Investment Analysis: LLMs for Equity Stock Ratings," Papers 2411.00856, arXiv.org.
    3. Joel R. Bock, 2024. "Generating long-horizon stock "buy" signals with a neural language model," Papers 2410.18988, arXiv.org.

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