Do LLMs make market more efficient? Yes

 

We have seen an explosion of new papers on how to use LLM in finance. Clearly, computing power can enable analysts to use vast amounts of data more effectively across companies. Many papers have shown that excess returns can be generated by using LLMs, but a more fundamental question is whether markets have become more efficient since the introduction of LLMs. This is the focus of the new paper “Do LLMs make markets more efficient?". 

The answer to the question of efficiency is yes. LLM availability eliminates 40 - 60% of post-new drift into the next trading day. LLM helps with short-horizon price discovery. The researcher used a novel way of determining this value-added by examining the effect of plausible exogenous outages of major LLM providers. When LLM providers are unavailable, there is more drift. 

Get on the LLM bandwagon, even though markets have already become more efficient with the use of this tool.  If you are not usng this tool, you are falling behind competitors.