43 PagesPosted: 2 May 2024Last revised: 3 May 2024
Date Written: March 31, 2024
Abstract
Equity research analysts have long been regarded as experts in predicting the performance of stocks. With the rapid advancements in artificial intelligence (AI), the question arises as to whether neural-network based deep-learning technology can surpass human analysts in this task. In this research, we apply a model-free deep-learning technique to equity research by training a simple neural-network (without pre-specified financial models or pre-defined accounting ratios) to predict 12-month-ahead stock price. Our AI model that runs on an inexpensive computer equipment is capable of processing vast amounts of financial statement raw data over a 14-year period in a fraction of the time and cost it would take a human analyst ($1,450 in equipment, 15 hours in time, and $2.5 in electricity, to be exact). It outperforms human analysts in 12-month-ahead target price forecasts by a large margin. Analysts and AI models are more likely to make similar predictions of the target price for firms that show signs of potential investment and future uncertainty, such as higher levels of cash, capital expenditures, and return volatility on the day of forecast. Overall, the results of this research support the notion that AI has the potential to replace human analysts in certain aspects of predicting financial performance.
Keywords: Analyst forecast, Target price, Artificial intelligence, Deep learning, Fintech
JEL Classification: C10, C45, G30, G23
Suggested Citation:Suggested Citation
FAQs
AI will not replace financial analysts, but it may reduce the number of such professionals as they become more efficient, effective, and reliable by using AI, machine learning, and other transformative technologies.
Could stock analysts be replaced by artificial intelligence? ›
Overall, the results of this research support the notion that AI has the potential to replace human analysts in certain aspects of predicting financial performance.
Can AI analyze the stock market? ›
AI models can analyze the historical market data and volatility that could affect returns and adjust portfolios in real-time to align with changing market conditions. Besides this, AI-driven algorithms improve overall portfolio performance by suggesting diversification strategies to mitigate potential risk.
Can AI replace analysts? ›
Q1: Can AI fully replace Data Analysts? Answer: While AI can automate certain tasks traditionally performed by Data Analysts, such as data cleaning and preliminary analysis, it is unlikely to fully replace the need for human analysts.
Will Chat GPT replace financial analysts? ›
The superior accuracy of ChatGPT's forecasts can be attributed to its ability to correct the optimistic biases inherent in human analysts' forecasts. We consider that LLM applications such as ChatGPT are not meant to fundamentally replace human financial analysts.
What jobs will not be replaced by AI by 2030? ›
Jobs that rely heavily on human skills like creativity, empathy, and complex problem-solving will likely remain relatively safe from AI automation for the foreseeable future. Roles that focus on augmenting or overseeing AI systems are also less prone to replacement by machines.
Can GPT 4 predict stock market? ›
The results were telling. With the step-by-step prompts, GPT-4 achieved a prediction accuracy of 60.35 per cent, significantly higher than the 52.71 per cent accuracy of human analysts. Moreover, GPT-4's F1-score, which balances the accuracy and relevance of predictions, also outperformed that of the human analysts.
What job is most likely to be replaced by AI? ›
What Jobs Will AI Replace First?
- Data Entry and Administrative Tasks. One of the first job categories in AI's crosshairs is data entry and administrative tasks. ...
- Customer Service. ...
- Manufacturing And Assembly Line Jobs. ...
- Retail Checkouts. ...
- Basic Analytical Roles. ...
- Entry-Level Graphic Design. ...
- Translation. ...
- Corporate Photography.
Can traders be replaced by AI? ›
AI can automate certain aspects of stock trading, analyzing data and executing predefined strategies. However, the success of AI in trading depends on various factors, and it cannot completely replace manual trading.
Why can't AI predict the stock market? ›
The reason is because it doesn't work. A neural network can't predict what the stock market is going to do just by looking at its history. There are forces way larger than "what it was before" that affect it.
Using artificial intelligence to guide trading strategy and execute trades is perfectly legal under U.S. and international law.
Will AI take over financial analyst? ›
Not to mention, human financial analysts bring creativity and critical thinking AI doesn't tend to possess. So, it is unlikely that AI will fully replace financial analysts, or at least any time in the near future. Instead, they may work together to improve efficiency and accuracy in decision-making processes.
Will ChatGPT replace data analysts? ›
No, ChatGPT and similar natural language processing models are not designed to replace data analysts. While these models can assist with certain tasks related to natural language understanding, they lack the specialized skills, domain knowledge, and analytical abilities that human data analysts bring to the table.
Will a finance analyst be replaced? ›
AI is unlikely to completely replace finance jobs, but it will significantly impact the field. Here's a breakdown of how AI will likely transform finance professions: Tasks replaced by AI: Repetitive tasks: AI excels at automating repetitive tasks like data entry, bookkeeping, and basic financial analysis.
Will business analysts be taken over by AI? ›
Could Business Analysis Be Automated? There's no need to panic – the Business Analyst role isn't going anywhere anytime soon! Business analysis involves a lot of critical thinking, emotional and social intelligence, and complex communications and discussions among multiple parties.
Will AI replace financial modeling? ›
AI can help make financial modeling and forecasting much quicker and easier, allowing you to make adjustments on the fly, use natural language to build complex reports and even have AI identify trends, risks and opportunities that you might miss.
Will research analysts be replaced by AI? ›
To put it simply, AI will not fully replace human researchers. The relationship between AI and humans is less about competition and more about collaboration. As we delve into this topic, it's crucial to understand that AI's role is to augment and support human efforts, not to render them obsolete.