Prediction of the change points in stock markets using dae‐lstm

Since the creation of stock markets, there have been attempts to predict their movements, and new prediction methodologies have been devised. According to a recent study, when the Russell 2000 industry index starts to rise, stocks belonging to the corresponding industry in other countries also rise accordingly. Based on this empirical result, this study seeks to predict the start date of industry uptrends using the Russell 2000 industry index. The proposed model in this study predicts future stock prices using a denoising autoencoder (DAE) long short‐term memory (LSTM) model and predicts the existence and timing of future change points in stock prices through Pettitt’s test. The results of the empirical analysis confirmed that this proposed model can find the change points in stock prices within 7 days prior to the start date of actual uptrends in selected industries. This study contributes to predicting a change point through a combination of statistical and deep learning models, and the methodology developed in this study could be applied to various financial time series data for various purposes.