Alex Kim

George Stein, Uros Seljak, Vanessa Bohm et al. · uw

We construct a physically-parameterized probabilistic autoencoder (PAE) to learn the intrinsic diversity of type Ia supernovae (SNe Ia) from a sparse set of spectral time series. The PAE is a two-stage generative model, composed of an Auto-Encoder (AE) which is interpreted probabilistically after training using a Normalizing Flow (NF). We demonstrate that the PAE learns a low-dimensional latent space that captures the nonlinear range of features that exists within the population, and can accurately model the spectral evolution of SNe Ia across the full range of wavelength and observation times directly from the data. By introducing a correlation penalty term and multi-stage training setup alongside our physically-parameterized network we show that intrinsic and extrinsic modes of variability can be separated during training, removing the need for the additional models to perform magnitude standardization. We then use our PAE in a number of downstream tasks on SNe Ia for increasingly precise cosmological analyses, including automatic detection of SN outliers, the generation of samples consistent with the data distribution, and solving the inverse problem in the presence of noisy and incomplete data to constrain cosmological distance measurements. We find that the optimal number of intrinsic model parameters appears to be three, in line with previous studies, and show that we can standardize our test sample of SNe Ia with an RMS of $0.091 \pm 0.010$ mag, which corresponds to $0.074 \pm 0.010$ mag if peculiar velocity contributions are removed. Trained models and codes are released at \href{https://github.com/georgestein/suPAErnova}{github.com/georgestein/suPAErnova}

Alex Kim, Maximilian Muhn, Valeri Nikolaev

We investigate whether large language models (LLMs) can successfully perform financial statement analysis in a way similar to a professional human analyst. We provide standardized and anonymous financial statements to GPT4 and instruct the model to analyze them to determine the direction of firms' future earnings. Even without narrative or industry-specific information, the LLM outperforms financial analysts in its ability to predict earnings changes directionally. The LLM exhibits a relative advantage over human analysts in situations when the analysts tend to struggle. Furthermore, we find that the prediction accuracy of the LLM is on par with a narrowly trained state-of-the-art ML model. LLM prediction does not stem from its training memory. Instead, we find that the LLM generates useful narrative insights about a company's future performance. Lastly, our trading strategies based on GPT's predictions yield a higher Sharpe ratio and alphas than strategies based on other models. Our results suggest that LLMs may take a central role in analysis and decision-making.

Alex Kim, Maximilian Muhn, Valeri Nikolaev

Generative AI tools such as ChatGPT can fundamentally change the way investors process information. We probe the economic usefulness of these tools in summarizing complex corporate disclosures using the stock market as a laboratory. The unconstrained summaries are remarkably shorter compared to the originals, whereas their information content is amplified. When a document has a positive (negative) sentiment, its summary becomes more positive (negative). Importantly, the summaries are more effective at explaining stock market reactions to the disclosed information. Motivated by these findings, we propose a measure of information ``bloat." We show that bloated disclosure is associated with adverse capital market consequences, such as lower price efficiency and higher information asymmetry. Finally, we show that the model is effective at constructing targeted summaries that identify firms' (non-)financial performance. Collectively, our results indicate that generative AI adds considerable value for investors with information processing constraints.

Alex Kim, Maximilian Muhn, Valeri Nikolaev

We explore the value of generative AI tools, such as ChatGPT, in helping investors uncover dimensions of corporate risk. We develop and validate firm-level measures of risk exposure to political, climate, and AI-related risks. Using the GPT 3.5 model to generate risk summaries and assessments from the context provided by earnings call transcripts, we show that GPT-based measures possess significant information content and outperform the existing risk measures in predicting (abnormal) firm-level volatility and firms' choices such as investment and innovation. Importantly, information in risk assessments dominates that in risk summaries, establishing the value of general AI knowledge. We also find that generative AI is effective at detecting emerging risks, such as AI risk, which has soared in recent quarters. Our measures perform well both within and outside the GPT's training window and are priced in equity markets. Taken together, an AI-based approach to risk measurement provides useful insights to users of corporate disclosures at a low cost.

Alex Kim, Jia Huang, Rob Monarch et al.

Application developers advertise their Apps by creating product pages with App images, and bidding on search terms. It is then crucial for App images to be highly relevant with the search terms. Solutions to this problem require an image-text matching model to predict the quality of the match between the chosen image and the search terms. In this work, we present a novel approach to matching an App image to search terms based on fine-tuning a pre-trained LXMERT model. We show that compared to the CLIP model and a baseline using a Transformer model for search terms, and a ResNet model for images, we significantly improve the matching accuracy. We evaluate our approach using two sets of labels: advertiser associated (image, search term) pairs for a given application, and human ratings for the relevance between (image, search term) pairs. Our approach achieves 0.96 AUC score for advertiser associated ground truth, outperforming the transformer+ResNet baseline and the fine-tuned CLIP model by 8% and 14%. For human labeled ground truth, our approach achieves 0.95 AUC score, outperforming the transformer+ResNet baseline and the fine-tuned CLIP model by 16% and 17%.