Intelligent Momentum: LLM-Enhanced Signals for S&P 500 Investors
Today, we finally have a tool that reads faster than markets react.
Momentum works because markets absorb information slowly. Today, we finally have a tool that reads faster than markets react. Large language models can interpret news in real time—giving active investors a new way to stay ahead of delayed price adjustment.
A simple, fully systematic S&P 500 momentum strategy that lets ChatGPT read the news and decide which momentum stocks deserve more (or less) money outperforms a standard momentum benchmark by +34 % in Sharpe ratio out-of-sample 3 month period that is completely after GPT-4’s training cutoff.
The out-of-sample period is truly unseen by the LLM and still works beautifully.
Below is my practitioner-friendly translation of the strategy into an investable thesis, exact prompts you can copy-paste, the optimal settings, and the performance numbers you care about.