Generative AI and Asset Management

This paper proposes a novel measure of investment companies’ reliance on generative AI, focusing on its implications for hedge funds. We document a sharp increase in generative AI usage by hedge funds after ChatGPT’s 2022 launch. A difference-in-differences test shows that hedge funds adopting generative AI earn 1.8-3.5% higher annualized abnormal returns than non-adopters. The outperformance originates from funds’ AI talent and ChatGPT’s strength in analyzing firm-specific information. Non-hedge funds and smaller, younger, and less active hedge funds yield no significant returns from AI adoption, suggesting generative AI may widen existing disparities among investors. We also conduct a survey of hedge fund managers’ generative AI usage that provides direct validation of our measure and offers additional new insights.