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Nearest-Neighbour Predictions in Foreign Exchange MarketsFernando Fernández RodríguezUniversity of Las Palmas de Gran Canaria - Faculty of Economic Science Simón Sosvilla RiveroComplutense University of Madrid Julián Andrada FélixUniversity of Las Palmas de Gran Canaria - Faculty of Economic Science January 2002 FEDEA Working Paper No. 2002-05 Abstract: The purpose of this paper is to contribute to the debate on the relevance of non-linear predictors of high-frequency data in foreign exchange markets. To that end, we apply nearest-neighbour (NN) predictors, inspired by the literature on forecasting in non-linear dynamical systems, to exchange-rate series. The forecasting performance of univariate and multivariate versions of such NN predictors is first evaluated from the statistical point of view, using a battery of statistical tests. Secondly, we assess if NN predictors are capable of producing valuable economic signals in foreign exchange markets. The results show the potential usefulness of NN predictors not only as a helpful tool when forecast daily exchange data but also as a technical trading rules.
Number of Pages in PDF File: 36 Keywords: Nearest-neighbour prediction methods, Exchange rates, Technical trading rules JEL Classification: C53, F31, G12, G15 working papers seriesDate posted: February 14, 2002Suggested CitationContact Information
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