Do LLMs Make Markets More Efficient?

This paper evaluates whether large language models (LLMs) improve or impair market efficiency. Exploiting plausibly exogenous outages at major LLM providers, we find that LLM availability eliminates at least 46% to 61% of post-news drift into the next trading day. The absence of reversal alongside the magnitude of this reduction suggests that LLMs play a first-order role in short-horizon price discovery. Because LLM supply is highly concentrated, outages expose a single point of failure in marketwide information processing. Consistent with this interpretation, investors insulated from major LLM outages can earn more than twice the day t + 1 returns of the longshort news-sentiment strategy following outage events.