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A Trillion Dollars Race – How ChatGPT Affects Stock Prices

This study analyzes the short-term impact of ChatGPT mentions in companies' 8-K filings on U.S. stock prices. An event study approach is used to assess whether ChatGPT-related disclosures significantly influence stock returns, revealing that the IT sector experiences positive abnormal returns regardless of the report’s content. Additionally, stock price reactions are influenced by beta, market capitalization, price-to-earnings ratio, and company age, though the significance of these factors varies depending on whether the news is positive or negative.

Key Research Methods

• Data Collection: 6-K and 8-K filings of U.S. publicly traded companies were collected, identifying reports mentioning "ChatGPT" during the first five months of 2023.

• Event Study Analysis: Stock price reactions were measured using an event study approach, with ChatGPT-related disclosure dates as event dates.

• Sector-Specific Analysis: Companies were categorized by sector, and the average Cumulative Average Abnormal Return (CAAR) for each sector was calculated.

• Regression Analysis: Regression models were used to identify factors influencing stock reactions, including beta, market capitalization, price-to-earnings ratio, and company age.

Key Findings

Limited Impact of ChatGPT Mentions:

• Despite frequent mentions of ChatGPT in SEC filings during early 2023, only a small number of reports had a statistically significant impact on stock prices.

• The market selectively reacts to ChatGPT-related disclosures, depending on the specific context and relevance of the information rather than the mere mention of ChatGPT.

Positive Market Reaction in the IT Sector:

• IT sector stocks tend to show positive abnormal returns following ChatGPT mentions, regardless of whether the report’s tone is positive or negative.

• This suggests that investors broadly expect generative AI technologies like ChatGPT to drive innovation and growth in the IT sector.

Determinants of Stock Price Reactions:

• Beta: High-beta stocks, which are more sensitive to market fluctuations, exhibit stronger reactions to ChatGPT-related news.

• Market Capitalization: Smaller-cap stocks, which are typically more prone to information asymmetry, react more strongly to ChatGPT-related disclosures.

• Price-to-Earnings (P/E) Ratio: Low P/E stocks, often perceived as undervalued, tend to receive more positive reactions when ChatGPT-related news is released.

• Company Age: Younger firms, expected to adopt innovative technologies more aggressively, show stronger stock price responses to ChatGPT-related disclosures.

Differences in Market Response to Positive vs. Negative News:

• The relative importance of these factors varies depending on whether the ChatGPT-related disclosure is positive or negative.

• Positive news sees company age playing a greater role, while negative news places more emphasis on financial stability.

Conclusion

This study highlights how ChatGPT mentions in regulatory filings impact stock prices and identifies key factors shaping market reactions. The findings suggest that ChatGPT does not universally drive positive stock performance—rather, its effects depend on company characteristics and the nature of the news.

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