Events

Prof. Xiumin Martin
Professor of Accounting
Olin Business School
Washington University in Saint Louis

We present the first analysis of the influence of democratized AI’s (ChatGPT) on investors’ trading activities. We develop an AI-sentiment measure using earnings conference calls. We find that before the introduction of ChatGPT, short-selling activities exhibited alignment with AI-sentiment, whereas retail trading did not. However, following the wide deployment of Chat-GPT, we observed a significant increase in the AI alignment of retail traders, accompanied by a decrease in the alignment of short sellers, implying that AI contributes to reducing the trading inequality between retail investors and short sellers. We further find that the primary mechanism driving the AI democratization effect on retail trading is its ability to lower information processing costs for retail investors. Lastly, AI-sentiment positively predicts returns both before and after the democratization of AI in a similar way, with no subsequent return reversal observed in the long run. This evidence suggests that AI-sentiment effectively captures fundamental information, and the increased alignment of retail investors’ trading with AI-sentiment does not appear to have a measurable impact on price efficiency. To strengthen our causal inferences, we examined the impact of exogenous ChatGPT outages. These outages significantly reduced the alignment between retail and AI-sentiment, thus reinforcing our conclusions.