ChatGPT could revolutionize portfolio management but is more of a 'copilot' than a 'prophet' for investors, study says

• ChatGPT can be a helpful assistant in the investment process, a study has found.
• This means AI could be used as a "copilot" for investors, researchers in South Korea said.

OpenAI's ChatGPT can serve as an effective assistant in portfolio management, a South Korean academic paper published this month has determined.

While the chatbot can't optimize portfolios the way a human can, it could be a convenient option for investors who lack knowledge or expertise in asset management, according to Seoul National University's Hyungjin Ko and Jaewook Lee.

In addition, even professional portfolio managers could use ChatGPT to boost their productivity, they added.

"ChatGPT is not a 'prophet' of the financial industry but rather an 'assistant' or 'co-pilot' to investors and portfolio managers," the researchers wrote. "When used appropriately within a set framework, ChatGPT has the potential to revolutionize asset allocation practices."

The study tested ChatGPT's financial prowess by having it create a portfolio out of a collection of 40 assets — including large-cap US stocks, cryptocurrencies, commodities, currencies, and bonds.

The test was run 10,000 times, during which the AI's work was pitted against randomly selected portfolios. The researchers found that ChatGPT outperformed the random portfolios and created sufficiently diversified ones.

"ChatGPT can identify abstract relationships between assets, particularly in terms of their dissimilarity with respect to the asset class," the researchers wrote.

But the researchers made sure not to characterize ChatGPT as a market predictor, and other users have pointed out instances where it provides wrong answers.

Its knowledge base also ends at 2021, meaning it hasn't accounted for the wild market swings in 2022, which saw the bear market, the Fed's aggressive tightening, and Russia's war on Ukraine, among other things.

The study concluded by saying, "it is important to note that the role of human experts in portfolio management remains crucial, as they must work in tandem with theoretical frameworks and investment theory to ensure proficiency and reliability in verifying accurate information from LLM."

Still, ChatGPT acquired around 100 million users within two months of its inception in November. And enthusiasm for AI technology has also shown up in markets, as certain companies focused on the growing sector are seeing equity gains.

For instance, Nvidia — which creates much of the hardware used for AI development — has surged 84% this year.

By 2025, the AI hardware and service market is forecast to hit $90 billion, according to UBS Global Wealth Management.