What Does ChatGPT Make of Historical Stock Returns? Extrapolation and Miscalibration in LLM Stock Return Forecasts
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arXiv
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| Auteurs principaux: | , , , |
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| Format: | Preprint |
| Publié: |
2024
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| _version_ | 1866912033276952576 |
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| author | Chen, Shuaiyu Green, T. Clifton Gulen, Huseyin Zhou, Dexin |
| author_facet | Chen, Shuaiyu Green, T. Clifton Gulen, Huseyin Zhou, Dexin |
| contents | We examine how large language models (LLMs) interpret historical stock returns and compare their forecasts with estimates from a crowd-sourced platform for ranking stocks. While stock returns exhibit short-term reversals, LLM forecasts over-extrapolate, placing excessive weight on recent performance similar to humans. LLM forecasts appear optimistic relative to historical and future realized returns. When prompted for 80% confidence interval predictions, LLM responses are better calibrated than survey evidence but are pessimistic about outliers, leading to skewed forecast distributions. The findings suggest LLMs manifest common behavioral biases when forecasting expected returns but are better at gauging risks than humans. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2409_11540 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | What Does ChatGPT Make of Historical Stock Returns? Extrapolation and Miscalibration in LLM Stock Return Forecasts Chen, Shuaiyu Green, T. Clifton Gulen, Huseyin Zhou, Dexin General Finance General Economics Economics We examine how large language models (LLMs) interpret historical stock returns and compare their forecasts with estimates from a crowd-sourced platform for ranking stocks. While stock returns exhibit short-term reversals, LLM forecasts over-extrapolate, placing excessive weight on recent performance similar to humans. LLM forecasts appear optimistic relative to historical and future realized returns. When prompted for 80% confidence interval predictions, LLM responses are better calibrated than survey evidence but are pessimistic about outliers, leading to skewed forecast distributions. The findings suggest LLMs manifest common behavioral biases when forecasting expected returns but are better at gauging risks than humans. |
| title | What Does ChatGPT Make of Historical Stock Returns? Extrapolation and Miscalibration in LLM Stock Return Forecasts |
| topic | General Finance General Economics Economics |
| url | https://arxiv.org/abs/2409.11540 |