News sentiment analysis using ChatGPT for Bitcoin price dynamics

Abstract This study investigates the use of ChatGPT as an automated tool for extracting and labeling Bitcoin-related news sentiment and examines how the resulting sentiment indicators affect Bitcoin returns and volatility. A large dataset of news headlines is processed via an API-based workflow, and the ChatGPT-derived sentiment indicators are subsequently incorporated as explanatory variables into selected statistical and machine learning models, including autoregressive (AR), heterogeneous autoregressive (HAR), Bayesian model averaging (BMA), least absolute shrinkage and selection operator (LASSO), and support vector regression (SVR). We find that while the sentiment indicators significantly improve in-sample estimation accuracy for returns and volatility, they do not lead to statistically significant gains in out-of-sample forecasting performance. This result suggests that ChatGPT-based sentiment measures primarily capture contemporaneous market-relevant information rather than persistent predictive signals, consistent with semi-strong market efficiency.