Seminar (Dept. of Accounting)

Title：AI (ChatGPT) Democratization and Trading Inequality

Speaker: Xiumin Martin, Professor, Olin Business School, Washington University in Saint Louis

Time：10:00-11:30, June 3th, 2025 (Tuesday)

Venue：Room 1008, Mingde Business Building

Language：English

ABSTRACT:

We present the first analysis of the influence of democratized AI’s (ChatGPT) on investors’ trading activities. We develop an AI-sentiment measure using earnings conference calls. We find that before the introduction of ChatGPT, short-selling activities exhibited alignment with AI-sentiment, whereas retail trading did not. However, following the wide deployment of ChatGPT, we observed a significant increase in the AI alignment of retail traders, accompanied by a decrease in the alignment of short sellers, implying that AI contributes to reducing the trading inequality between retail investors and short sellers. We further find that the primary mechanism driving the AI democratization effect on retail trading is its ability to lower information processing costs for retail investors. Lastly, AI-sentiment positively predicts returns both before and after the democratization of AI in a similar way, with no subsequent return reversal observed in the long run. This evidence suggests that AI-sentiment effectively captures fundamental information, and the increased alignment of retail investors' trading with AI-sentiment does not appear to have a measurable impact on price efficiency. To strengthen our causal inferences, we examined the impact of exogenous ChatGPT outages. These outages significantly reduced the alignment between retail and AI-sentiment, thus reinforcing our conclusions.

SHORT BIOGRAPHY:

Xiumin Martin joined Olin Business School in 2007 after graduating from the University of Missouri in Columbia. Before her work towards her doctorate degree Professor Martin worked at Deloitte and Touche Tohmatsu in Shanghai as an Auditor. She is an editor at The Accounting Review, and associate editor at Management Science. Her research and expertise focus on accounting, corporate governance, and financial reporting. Prior to her doctoral studies, she completed an MS at Hong Kong Baptist University (2003) and a BA at Nanjing University (1995).