AI's Edge in Markets, FinTech Fundraising, and Index Ventures' $2.3B Bet
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The Rundown
Outsmarting the Market with AI: An interview with Dr. Lopez-Lira
FinTech Raises $36 million For AI-Driven Data Management for Investors
Q&A
AI Street interviewed Dr. Alejandro Lopez-Lira, a finance professor at the University of Florida and author of the book “The Predictive Edge: Outsmart the Market using Generative AI and ChatGPT in Financial Forecasting” out today.
The book explains how to use artificial intelligence and large language models (LLMs) to find investment ideas, improve trading strategies and increase efficiency.
Lopez-Lira has been at the forefront of AI and finance, publishing a research paper last year on ChatGPT’s ability to predict stock returns based on news headlines. Lopez-Lira and his co-author, Yuehua Tang, asked ChatGPT to decide how a headline would affect a company’s stock price with a short prompt:
Forget all your previous instructions. Pretend you are a financial expert. You are a financial expert with stock recommendation experience. Answer “YES” if good news, “NO” if bad news, or “UNKNOWN” if uncertain in the first line. Then elaborate with one short and concise sentence on the next line. Is this headline good or bad for the stock price of X company?
ChatGPT produced statistically significant results that outperformed traditional sentiment models despite it not having any explicit financial training.
The study, which has been downloaded more than 60,000 times, landed Lopez-Lira his first book deal and garnered interest from multiple news outlets, major hedge funds, and the U.S. Securities and Exchange Commission.
This interview has been edited for clarity and length.
AI Street: How did your book come about?
Everybody was interested in the research paper. I got calls from journalists, hedge funds. An editorial contact at Wiley said `Hey, you want to write a book about it?’
So, I did. And in the book, it runs from beginner to more advanced topics. You will learn the basics of AI and the basics of finance from risk management to summarization to more advanced tasks like having agents based on LLMs trading by themselves.
What can you currently do with this technology?
You can use LLMs to assess economic news like macroeconomic indicators and combine that to the specific program that's executing the software.
I created a markets’ website where all the content is generated by large language models. It generates a daily report with macroeconomic environment news, headlines on companies for every S&P 500 stock. I built this with my dad, who’s a software engineer and it took us about six hours or something.
This website is a kind of showcase of what you can already do with existing tools. You can take a bunch of unstructured data: news, conference calls, whatever you want and produce nice reports.
Read the full interview here.
FUNDRAISING FinTech Raises $36 million For AI-Driven Data Management for Alternative Investors
Canoe Intelligence, a financial technology company, raised $36 million in Series C funding from investors led by Goldman Sachs to expands its AI-driven data management platform for alternative investors.
The funding round was led by Growth Equity at Goldman Sachs Alternatives with participation from existing investors F-Prime Capital and Eight Roads. The latest round represents a 3x increase in the company’s valuation since its Series B financing in February 2023, according to a July 9 press release.
Canoe leverages artificial intelligence to automatically collect and categorize data from alternative investment documents, eliminating manual data entry. The company processes more than 25 million documents annually, resulting in a 20-fold increase in the number of funds processed per employee, per the press release.
There’s been a lot of fundraising activity for companies using AI to take unstructured data, like text in PDFs or regulatory filings, and streamlining that data into users’ systems. (Hebbia recently raised $130 million.) The latest fundraising follows BlackRock’s $3.2 billion purchase of Preqin, a data provider for private markets, the fastest growing segment of asset management.
BIG PICTURE
The ability to take unstructured data from various documents is now a reality with AI — as Dr. Lopez-Lira pointed out in our interview. This dramatically reduces manual data entry and companies are racing to employ this efficiency-boosting tech.
Index Ventures Announces $2.3 Billion For New Venture & Growth Funds
Venture capital firm, Index Ventures, raised $2.3 billion to finance tech startups globally with a focus on AI.
The company founded in 1996 said AI will “will revolutionize virtually every sector of the economy,” according to a press release. More than half of the firm’s recent investments have been in AI, partner Martin Mignot told the Financial Times.
The funds are spread across different stages with $800 million dedicated to venture investment and $1.5 billion for growth- and late-stage companies.
Index has made a push into the booming generative AI sector, with large language model companies Mistral and Cohere in its portfolio, as well as data-management company Scale AI and AI-translation startup DeepL.
BIG PICTURE
The highest interest rates in two decades has crimped venture capital fundraising — except for some of the largest AI-tied projects, according to Bloomberg News. The focus on boosting back-office efficiency by automating manual data collection is already producing real revenue.
Have an innovative or underreported AI use case for finance? Reach out: matt@ai-street.co
MORE AI + FIN NEWS Companies Turn to Smaller Language Models
Credit-rating company Experian shifted from large models to small for its AI chatbots for financial advice and customer service. The smaller models performed as well as larger ones at a fraction of the cost after being trained on the company’s internal data. (Wall Street Journal)
Financial Business Leaders Struggle to Keep Pace With AI, Report
Mayer Brown survey finds business executives fear AI outpacing them, with M&A seen as a quick fix to bridge the tech gap. (AI Business)
Deutsche Bank and HSBC are winning Europe’s AI talent war
U.K. banks have expanded their AI talent pools faster than the U.S. and Europe to start 2024, according to the consultancy Evident. (Fortune)
FidoGPT Decoding Dog Barks with AI
Researchers at the University of Michigan are studying how artificial intelligence technology can be used to understand a dog’s communication.
AI models originally trained on human speech can be used as a starting point to train new systems that target animal communication, according to the New York Post.
Created with ChatGPT
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