Deep Learning Networks for Stock Market Analysis and Prediction: Methodology, Data Representations, and Case Studies

Chong, E.; Han, C.; Park, F.C.

Abstract

We offer a systematic analysis of the use of deep learning networks for stock market analysis and prediction. Its ability to extract features from a large set of raw data without relying on prior knowledge of predictors makes deep learning potentially attractive for stock market prediction at high frequencies. Deep learning algorithms vary considerably in the choice of network structure, activation function, and other model parameters, and their performance is known to depend heavily on the method of data representation. Our study attempts to provides a comprehensive and objective assessment of both the advantages and drawbacks of deep learning algorithms for stock market analysis and prediction. Using high-frequency intraday stock returns as input data, we examine the effects of three unsupervised feature extraction methods—principal component analysis, autoencoder, and the restricted Boltzmann machine—on the network’s overall ability to predict future market behavior. Empirical results suggest that deep neural networks can extract additional information from the residuals of the autoregressive model and improve prediction performance; the same cannot be said when the autoregressive model is applied to the residuals of the network. Covariance estimation is also noticeably improved when the predictive network is applied to covariance-based market structure analysis. Our study offers practical insights and potentially useful directions for further investigation into how deep learning networks can be effectively used for stock market analysis and prediction.

Citation

Chong, E., Han, C., & Park, F. (2017). Deep Learning Networks for Stock Market Analysis and Prediction: Methodology, Data Representations, and Case Studies. Expert Systems with Applications, 83, 187-205. https://doi.org/10.1016/j.eswa.2017.04.030

• Journal Article Type: Article
• Acceptance Date: Apr 16, 2017
• Online Publication Date: Apr 22, 2017
• Publication Date: Apr 1, 2017
• Deposit Date: Apr 18, 2017
• Publicly Available Date: Apr 22, 2018
• Journal: Expert Systems with Applications
• Print ISSN: 0957-4174
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 83
• Pages: 187-205
• DOI: https://doi.org/10.1016/j.eswa.2017.04.030
• Public URL: https://durham-repository.worktribe.com/output/1389193