The latest artificial-intelligence hype is powering a massive surge in the stock market on bets that a new era of innovation is nigh.
Yet for money managers who weaponize
So-called generative AI is already helping to speed up mundane tasks known to crush the spirit of junior Wall Street employees, hedge funds say — from reviewing reams of market research to writing basic code and summarizing fund performance.
Chatbots could eventually help generate material efficiency gains and provide more rewarding work for their human overlords, possibly at the cost of jobs. But it's early days yet.
Read more:
At systematic hedge fund Campbell, its quants have spent months experimenting with using the tech behind ChatGPT to summarize internal research and write boilerplate code. Yet generative AI tools are proving no game-changer for their day-to-day investing methods just yet.
"They are very strong for code completion, editing, finding errors and fixing bugs," said Kevin Cole, chief executive officer at Campbell. "Our model would keep humans in the loop — an assistant to the human helping to make their job more efficient."
AI on Wall Street is a broad church that includes everything from machine-learning algorithms used to compute credit risks to natural language processing tools that scan the news for trading. Generative AI, the latest buzzword exemplified by OpenAI's chatbot, can follow instructions and create new text, images or other content after being trained on massive amounts of inputs. The idea is that if the machine reads enough finance, it could plausibly price an option, build a portfolio or parse a corporate news headline.
As hedge funds experiment with the latest iterations of these tools, the ultimate goal is
At Man Group, one of the world's largest hedge funds, Rob Furdak says ChatGPT can speed up the preliminary parts of research by reviewing a stack of academic papers on a particular topic and detecting basic patterns in data sets.
"A big part of the research process is cleaning the data, mapping it and then doing a preliminary analysis," said the chief investment officer for responsible investment. "ChatGPT could say 'that's an interesting hypothesis, but here are other hypotheses you may want to investigate as well.'"
Read more:
The firm is also looking into automating the grunt work of investor relations, he said, since ChatGPT can easily explain performance by synthesizing market data and fund returns.
Wall Street, of course, is already famously filled with computer wizards that populate algo trading desks, quant hedge funds and high-frequency market makers, and to them, ChatGPT's capabilities might not seem that new. The current frenzy has arguably been fueled as much by the sudden widespread availability of the tool as any advances in what generative AI actually does.
Still, early studies suggest the chatbot does represent some steps forward. For instance, Fed researchers found it beats existing models such as Google's BERT in classifying sentences in the central bank's statements as dovish or hawkish.
A paper from the University of Chicago showed ChatGPT can distill bloated corporate disclosures into their essence in a way that explains the subsequent stock reaction. Academics have also suggested it can
Read more:
Peter Cotton, chief data scientist at Intech Investment Management, is among recent converts after testing the robot himself. He posted a conversation he had with ChatGPT on Github, where he used it to write code for extracting data and making predictions.
"My whole workflow has been dramatically changed," he said. "I'm surprised by just how much knowledge is stored inside."
The technology isn't perfect, however. ChatGPT has been known to make up facts and spit out different responses to the same prompt, and is only trained on data up to late 2021. Meanwhile, in an industry where trade secrets are anxiously guarded, many are still hesitant about relying on external software.
For that reason, Campbell has also experimented with an open-source and less powerful GPT model that can run entirely within its own systems, said Cole.
"We have to be very careful about risks of IP leakage with those types of tools because with ChatGPT, you're sending queries to OpenAI servers," he said.
While hedge funds figure out what's possible with generative AI, the consequences for the industry's
Read more:
Greg Bond, chief executive officer of Man Numeric, Man Group's Boston-based unit, reckons the tech could be an opportunity for creative employees who lack technical expertise but can ask the right questions.
"If we assume research productivity is dropping more globally, you can either hire more people or you could have some digital researchers that are a force multiplier on your existing research and technology staff," Bond said. "Ultimately what would be nice is if we could automate the innovation process itself."
