Empowering Investment Strategies through the Innovative Application of LLMs and Geopolitical Risk Sentiment

The intricate relationship between geopolitical sentiment and financial markets has long captivated economists, traders, and policy analysts.

The intricate relationship between geopolitical sentiment and financial markets has long captivated economists, traders, and policy analysts. From the oil embargoes of the 1970s to contemporary trade wars and military conflicts, global events have generated significant ripples—often tidal waves—through equity markets. With the advancements in artificial intelligence (AI) and big data, quantifying this relationship has become increasingly feasible. The Geopolitical Risk Sentiment Tracker (GRST), constructed using Google Trends data and powered by advanced neural networks, provides a real-time measure of public interest in geopolitical issues, offering critical insights into how these risks influence market behavior. In this article, I delve into the complexities of this relationship, comparing small-cap stocks (IWM) and large-cap stocks (SPY) based on GRST changes. By employing quantitative strategies that leverage the GRST and enhanced by large language models (LLMs), I aim to refine …