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This study analyzes whether ChatGPT can enhance investment decision-making from a portfolio management standpoint. It evaluates the diversity of assets selected by ChatGPT and compares the results with benchmark portfolios. The findings indicate that ChatGPT’s asset selection demonstrates statistically significant improvements in diversity indices over random selection, leading to better-performing portfolios. Consequently, ChatGPT is identified as a potentially valuable tool for portfolio construction.

Key Research Methods

• Asset Selection: ChatGPT is tasked with selecting 2–4 assets from five categories: stocks, cryptocurrencies, commodities, currencies, and bonds.

• Diversity Index Calculation: The Simpson and Shannon indices measure the diversity of ChatGPT-selected assets, along with the average correlation among asset returns.

• Portfolio Construction: Based on ChatGPT’s asset selection, a tangency portfolio (optimized for maximum Sharpe ratio) and a minimum-risk portfolio are created.

• Performance Evaluation: ChatGPT-generated portfolios are compared to randomly selected portfolios using the Sharpe ratio, standard deviation, and other risk-adjusted return metrics.

Simpson and Shannon Indices Explained

• Simpson Index: Measures how likely two randomly chosen assets belong to the same category. A lower Simpson index indicates higher diversity.

  • Formula: D=1−∑pi2D = 1 - \sum p_i^2D=1−∑pi2​ (where pip_ipi​ represents the proportion of each asset class)

• Shannon Index: Measures entropy within the asset distribution, with higher values indicating greater diversity.

  • Formula: H=−∑piln⁡(pi)H = -\sum p_i \ln(p_i)H=−∑pi​ln(pi​)

Key Findings

ChatGPT Enhances Portfolio Diversity

• ChatGPT-selected assets exhibit a lower Simpson index and a higher Shannon index compared to random selection, indicating greater diversification.

• It does not simply select different asset classes but strategically diversifies assets with low correlations.

Improved Risk-Adjusted Returns

• Portfolios constructed using ChatGPT’s selections outperform randomly generated portfolios in terms of Sharpe ratio and volatility reduction.

Tangible Portfolio Optimization Benefits

• ChatGPT-selected portfolios provide effective risk-adjusted returns, making them useful for diversified investment strategies.

Conclusion

ChatGPT demonstrates an ability to improve portfolio diversity and optimize asset selection beyond random chance. By strategically selecting assets that enhance diversification, ChatGPT-based portfolios deliver better investment performance.

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