I try and read some investing/trading papers from time to time and chanced upon this paper written by Lunying Lv.
The paper looks at whether the reports written by financial analysts have value for investors. The researchers used LLMs to read and analyse millions of sentences from about 1.2 million reports from 200-2023.
Here's what they found:
Words have value: The language in the reports can predict how a stock will perform in the future, even better than just looking at a company's financial numbers alone.
Negative news can be good: The reports that predict a negative future for a company but also have a positive long-term outlook are the most valuable. This suggests that the stock market sometimes overreacts to bad news, creating a buying opportunity.
Strategic insights are key: The most important part of the reports is the "strategic outlook" section, which talks about a company's future plans and growth potential. This part had the biggest impact on predicting a stock's performance.
AI helps humans: The study shows that using AI to analyse written reports can help investors and analysts make better decisions. It's a way for technology to help, not replace, human financial experts.