Annual update for the Smith AI initiative for capital market research

Sean Cao and Lei Zhou

University of Maryland

Objectives:

Knowledge transfer from academic AI research to industry applications

• Bridge the divide between academic research and its industry implementation and make tangible impact in the real world.
• Enhance the practical application of AI in various sectors, including accounting firms, investment companies, financial service, legal counsel, and regulatory bodies.

Train talents for AI expertise with domain-specific data and industry demand

• We plan to produce a new AI textbook, specifically designed to introduce applied AI in accounting and finance. This textbook aims to help students to use AI tools to produce and analyze unstructured financial data.
• We plan to establish a complimentary video library, intended to bolster the education of applied AI in capital markets. This resource is intended to benefit wide-ranging communities, including students, professionals, and any individual with curiosity.
• Our initiative aims to develop an inclusive AI literacy course accessible to students across all academic majors at the University of Maryland.

The Smith AI Initiative for Capital Market Research

Involved Faculty:

​

Faculty Affiliates:

​

​

• Accounting

Prof. Michael Kimbrough

Prof. Jingyi Qian

Prof. Musa Subasi

Prof. Lei Zhou

• Finance

Prof. Alex He

Prof. Agustin Hurtado

Prof. Vojislav Maksimovic 

• Decision, Operations & Information Technologies

Dean Prabhudev Konana

Prof. Kunpeng (KZ) Zhang 

The Smith AI Initiative for Capital Market Research

https://www.rhsmith.umd.edu/ai/capital-market-research

A big step: our website

​

What we have done so far

1. Class Visits

April 13, 2023: Class visits for the Intermediate Accounting course taught by Sean Cao.

• Jackie Cardello joined our Intermediate Accounting course at the University of Maryland as a distinguished guest.
• Jackie attended the final presentations of our students, offering her vast knowledge and experience in the field of accounting and finance.

1. Class Visits

• August 31, 2023: Class visits for the Principal of Accounting course taught by Basu.

Sue Chon visited Professor Basu's BMGT 220 classes, serving as a guest speaker across three sessions.

Her expertise provided the students with critical insights into the practical applications of accounting principles.

• December 7, 2023: Class visits for the Principal of Accounting course taught by Basu.

Jackie Cardello, Sue Chon, and Ian Shuman coordinated a Live Case Study in the three sections.

This involvement enabled students to engage directly with complex, real-life business scenarios, enhancing their analytical and problem-solving skills.

• Class visits for the Accounting Systems course taught by Lei Zhou.

Jackie was invited to serve as a guest speaker In Professor Lei Zhou's accounting classes.

This opportunity allowed students to gain insights directly from a seasoned professional, enriching their learning experience with real-world perspectives and knowledge in the accounting domain.

What we have done so far

2. Providing Insight into Career Paths for Smith Students

December 20, 2023: Jackie Cardello sharing career path with Smith School accounting student.

• Jackie delves into the evolving landscape of the accounting profession, highlighting the increased flexibility and improved work-life balance it now offers.
• This exchange provides valuable insights for students, shedding light on contemporary trends and opportunities within the accounting field.

What we have done so far

The video is available at https://www.youtube.com/watch?v=S3h_F-emDs8

3. Fostered Departmental Meetings and Collaborations

• December 7, 2023: Breakfast and luncheon engagements with Maryland faculty and GRF CPAs & Advisors members.
• November 6, 2023: Breakfast and luncheon engagements with Maryland faculty and GRF CPAs & Advisors members.

These meetings featured in-depth discussions and a shared commitment to exploring collaborative opportunities. With the participation of GRF CPAs and AIA faculty, these gatherings served as platforms for fostering strategic partnerships and identifying mutual opportunities for advancement.

What we have done so far

4. Active Participation in Advisory Board Meetings

• January 29, 2023: GRF CPAs & Advisors convened meetings with Smith School advisory board to define the strategic direction for the upcoming year.
• October 27, 2023: GRF CPAs & Advisors had meetings with Smith School advisory board to review prior collaborations and strategically plan for future initiatives.

What we have done so far

5. Organized Events

January 23, 2024: AI Symposium on Design & Governance

• The AI Initiative for Capital Market Research contributed to organizing the AI Symposium on Design & Governance at the Robert H. Smith School of Business at the University of Maryland. The symposium attracted a full house of 200 participants from both the academic and industry sectors.

What we have done so far

5. Organized Events

What we have done so far

January 23, 2024: AI Symposium on Design & Governance

• The Director of Smith AI initiative, Sean Cao, assisted in inviting two esteemed speakers, one from the buy-side and one from the sell-side of the financial sector, facilitating a substantial exchange of ideas that delved into crucial industry perspectives.
• Their involvement significantly enhanced the symposium by shedding light on both the practical implementations and challenges associated with AI in capital markets.

What is our plan?

• Complete the textbook by Spring 2025.
• Finish the complimentary video library by Spring 2026.
• Develop a new AI course, with a pilot launch for master's students in Fall 2024. Your help to support students will be invaluable.
• Expand course offerings to undergraduates and PhD seminars in Fall 2025.
• Revise the textbook and course content based on insights gained over the past two years and produce finalized and enhanced materials by 2027.
• Conduct more AI related research to benefit both students and firms.

What is our plan?

• Cao, S., Jiang, W., Wang, Junbo and Yang, B. From Man vs. Machine to Man + Machine: The Art and AI of Stock Analyses

​

Abstract:

We train an AI analyst that digests corporate disclosures, industry trends, and macroeconomic indicators to the extent it beats most analysts. Human wins the “Man vs. Machine” contest when a firm is complex with intangible assets, and AI wins when information is transparent but voluminous. Analysts catch up with machines over time, especially after firms are covered by alternative data and their institutions build AI capabilities. AI power and human wisdom are complementary in generating accurate forecasts and mitigating extreme errors, portraying a future of “Man + Machine” (instead of human displacement) in financial analyses, and likely other high skill professions.

​

Target to finish by Fall 2024

What is our plan?

• Cao, S, Gong, G. Shi, H, Kim, Y and Wang, A. Site Visits and Corporate Investment Efficiency
• Cao, S., Yang, B. and A. Zhang (Former PhD student). Managerial Risk Assessment and Fund Performance: Evidence from Textual Disclosure
• Cao, S, Cong, L. and Yang, B. Financial Reporting and Blockchains: Audit Pricing, Misstatements, and Regulation
• Complete the textbook: Analytics for Finance and Accounting: Data Structures and Applied AI

​

Target to finish by Fall 2025

What is our plan?

• Cao, S., Da, Z., Jiang, D. and Yang, B. The Strategic Use of 13F Restatement by Hedge Funds
• Finish the complimentary video library.

Target to finish by Fall 2026

What is our plan?

• Cao. S, Kim, Y, Wang, A. and Xiao, H. From Words to Syntax: Identifying Context-specific Information in Textual Analysis

​

Abstract

When quantifying information from unstructured textual data, the traditional approach in the literature only captures semantic features of single words or phrases. The context, the sequence of words, and the relationship between words are ignored. This paper introduces a novel approach to incorporate complex syntactical features in textual analysis using two applications of machine learning (ie, neural-network-based natural language parser and word embedding). We demonstrate the usefulness of this approach by analyzing the tone of financial narratives in earnings conference calls. We construct a new measure of sentiment that is specific to performance discussions and is adjusted for complex contextual negations. We find that this performance-specific sentiment explains cross-sectional returns and future operating performance better than the umbrella sentiment proxy and the simple rule-based measures used in the literature. An analysis of earnings-related forward-looking statements in conference calls confirms the value of this new approach in identifying context-specific information.

​

Target to finish by Fall 2027

• GRF CPAs & Advisors has generously provided $150,000 as a seeding gift to the AI Initiative. Kindly click for the public release
• We are currently actively seeking collaborative opportunities with potential industry partners who resonate with our vision. Such partnerships have the potential to deliver mutual benefits to both the University of Maryland and potential donors. These collaborations can serve as catalysts for elevated knowledge transfer and valuable talent acquisitions for finance, accounting and other professional firms.

​

Thank you!