Can ChatGPT unlock better investment portfolio selection?

This white paper explores the potential uses of generative artificial intelligence (AI) models, such as ChatGPT, for investment portfolio selection. We use ChatGPT to obtain a universe of stocks from the S&P 500 market index that are potentially attractive for investing. We compared various portfolio optimisation strategies that utilised this AI-generated trading universe, evaluating those against quantitative portfolio optimisation models, as well as comparing with some of the popular investment funds. Our findings indicate that ChatGPT is effective in stock selection, but may not perform as well in assigning optimal weights to stocks within the portfolio. But, when stock selection by ChatGPT is combined with established portfolio optimisation models, we achieve even better results. By blending strengths of AI-generated stock selection with advanced quantitative optimisation techniques, we observed the potential for more robust and favourable investment outcomes, suggesting a hybrid approach for more effective and reliable investment decision-making in the future.

 

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