Do Narratives Crowd Out Fundamentals? Retail Investors' Response to Generative AI
Abstract
This study examines how retail investors respond to the advent of generative AI and the ensuing capital-market consequences. Using a large language model to analyze millions of investor questions from China's Investor Interactive Platforms (IIP), we document a structural reallocation of retail investors' information demand. Following the launch of ChatGPT, firms with high prior AI engagement receive significantly more AI-related questions, while questions about non-AI topics decline. This shift in information demand is associated with higher trading volume and volatility but, paradoxically, weaker price informativeness. Our findings suggest retail investors' AI information demand introduces speculative noise and crowds out their attention to non-AI fundamentals, providing a novel perspective on how generative AI transforms financial markets.