ChatGPT, an artificial intelligence chatbot developed by OpenAI, is making headlines for its utility across various sectors. It promises to revolutionise the financial services industry, which has been one of the earliest users of algorithms and artificial intelligence. It can transform investment management by analysing vast amounts of data to identify opportunities, generate insights, and even recommend optimal portfolios. This article examines the uses of ChatGPT in finance and investment from the perspective of both individual investors, and analysts.
In layman’s language, ChatGPT is a chatbot trained to understand and generate human-like responses in the form of text. The application is touted as the next big thing since Google search. Some experts see it as an advanced version of Google search that searches the internet, processes information, and then provides you with its natural language content. The application has caused a major disruption in the way humans see information. Using the ChatGPT interface, any query could be made, and it will provide a concise answer to your query. The interface is user-friendly and is like any other chatbots available today.
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Application of ChatGPT in investing
Artificial intelligence has improved risk assessment by quantifying risks associated with financial instruments and aiding in regulatory compliance. In addition, algorithms and AI have enhanced fraud detection and prevention by enabling the identification of suspicious activities and protecting customer assets. They have also transformed trading with high-frequency trading algorithms and AI-powered systems that execute trades quickly and leverage market data analysis for improved trade execution and transparency.
Potentially, ChatGPT has several applications related to investments. For beginners who want to start their investment journey, they can use the chatbot to select the best possible books of their interests. In addition to this, the chatbot will also provide chapter-wise summaries of the book. Today, many concepts are available related to investment, and it is not always possible to have a clear idea of all of them. The application will provide an easy solution by providing a detailed explanation of any concept related to finance and investments.
Using the application, one can compare different stocks, sectors, markets, and parameters to generate summarised reports that could save time and ease decision-making. By utilising this information, one can easily mark the existing trend, risk parameters, and other factors related to investments. One can then ask the application to find recent scientific studies done on a particular topic such as private equity, venture capital, and others. It will provide a concise summary of each scientific study that saves overall time by providing the latest information on the desired topic with ease.
ChatGPT has wide applications in personal finance. One can design retirement plans using the interface. It will simply ask for certain parameters such as age, risk preference, income, and expenses. Then based on your inputs, it will generate a customised retirement plan. One can ask the chatbot to suggest mutual funds to invest in for the next five years, and by refining the query, one can drill down the choices to other parameters such as selecting only passive funds, funds with high ROE, mid-cap funds, large-cap funds, and others.
Similarly, ChatGPT can suggest and help in picking sunrise sectors and blue-chip stocks in India or globally. Furthermore, the chatbot can also suggest the best possible fund-wise weight allocation of your selection to construct an investment portfolio.
For the best use of the application in making investment decisions, one should think of it as an assistant or mentor who gives general advice, and not believe in its responses blindly. Cross-check its suggestion and do your additional analysis before making your investment decisions. Be very specific and clear with your queries to yield the best results while using the interface.
The chatbot released in November 2022 works on reinforcement learning with human feedback. Its performance improves with feedback. Its greatest limitation is that its knowledge cut-off is only up to 2021. The AI application is a breakthrough invention made in this generation and updated versions will be more interesting. Investing based on ChatGPT inputs needs to be analysed critically to avoid huge losses. The chatbot is not limited to English language, but it can also work in other languages.
(Dr Moinak Maiti is an author and independent researcher.)