Using Weekly Empirical Probabilities in Currency Analysis and Forecasting

30 Pages Posted: 26 Jan 2010

See all articles by Andrew C. Pollock

Andrew C. Pollock

Glasgow Caledonian University

Alex Macauley

Glasgow Caledonian University

Mary E. Thomson

Glasgow Caledonian University

Dilek Onkal

Bilkent University

Date Written: October 1, 2008

Abstract

The Empirical Probability (EP) technique is proposed as an effective support tool to assist agents operating in a global fusion of financial markets. This technique facilitates the identification and prediction of primary, secondary and tertiary trends in addition to the recognition of trend reversals and the detection of changes in trend momentum. The suggested procedure is illustrated by deriving weekly (five-day) non-overlapping estimated probabilities from daily Euro/USD exchange rate data from 04/01/1999 to 31/12/2004 and applying these probabilities to the analysis and forecasting of exchange rate movements. In addition, trend characteristics of the data are used to develop a trading system that not only provides buy and sell indicators but also supplies directional probabilities associated with the signalled actions.

Keywords: Foreign Exchange, Forecasting, Investment Decisions

JEL Classification: F31, F47, G11, G15

Suggested Citation

Pollock, Andrew C. and Macauley, Alex and Thomson, Mary E. and Onkal, Dilek, Using Weekly Empirical Probabilities in Currency Analysis and Forecasting (October 1, 2008). Frontiers in Finance and Economics, Vol. 5, No. 2, pp. 26-55, 2008, Available at SSRN: https://ssrn.com/abstract=1542597

Andrew C. Pollock (Contact Author)

Glasgow Caledonian University ( email )

City Campus
Cowcaddens Road
Glasgow G4 0BA, Scotland
United Kingdom

Alex Macauley

Glasgow Caledonian University ( email )

City Campus
Cowcaddens Road
Glasgow G4 0BA, Scotland
United Kingdom

Mary E. Thomson

Glasgow Caledonian University ( email )

City Campus
Cowcaddens Road
Glasgow G4 0BA, Scotland
United Kingdom

Dilek Onkal

Bilkent University ( email )

Bilkent University
Faculty of Business Administration
Bilkent, Ankara 06800
Turkey
+90.312.290.1596 (Phone)

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