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Learning from the Best: Can Artificial Intelligence Replicate Equity Analyst Skill?

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26
Author
Jason Ming Hamish Malloch P. Joakim Westerholm
Category
Financial
Date Posted
2024/05/07
Date Retrieved
2024/05/08
Date Revised
Date Written
2024/05/07
Description
This paper examines the ability of a popular large language model—ChatGPT—to emulate the skills of equity analysts. We tackle this question using text transcripts from earnings conference calls. Our approach is two-fold. First we use the question-and-answer section of analyst to train ChatGPT regarding how analysts think about information relevant to their analysis. Next we apply what ChatGPT has learned to evaluate transcripts from 200 of the largest firms in the US by developing an Analyst Insight Score (AIS) for each firm-transcript pair. We find that our “machine- learned” AIS is consistent with observed behaviour from analysts including adjustments to price targets after earnings announcements. Moreover our AIS outperforms more traditional analyst metrics such as the Standard Unexpected Earnings (SUE). Finally we find that our AIS allows for the construction of portfolios that earn abnormal returns with respect to several standard asset pricing models.
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JEL Classifications
G11 G12 G14 C45
Keywords
AI ChatGPT Earnings Call Information and Market Efficiency Textual Analysis
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Pages
34
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