Forecasting Exchange Rates Using General Regression Neural Networks

35 Pages Posted: 17 Jan 2000

See all articles by Mark T. Leung

Mark T. Leung

University of Texas at San Antonio - Department of Management Science and Statistics

An-Sing Chen

National Chung Cheng University - Department of Finance

Hazem Daouk

Cornell University - School of Applied Economics and Management

Date Written: April 1999

Abstract

Predicting currency movements has always been a problematic task as most conventional econometric models are not able to forecast exchange rates with significantly higher accuracy than a naive random walk model. For large multinational firms which conduct substantial currency transfers in the course of business, being able to accurately forecast the movements of exchange rates can result in considerable improvement in the overall profitability of the firm. In this study, we apply the General Regression Neural Network (GRNN) to predict the monthly exchange rates of three currencies, British pound, Canadian dollar, and Japanese yen. Our empirical experiment shows that the performance of GRNN is better than other neural network and econometric techniques included in this study. The results demonstrate the predictive strength of GRNN and its potential for solving financial forecasting problems.

Keywords: General regression neural networks, currency exchange rate, forecasting

JEL Classification: G15, C45, C53

Suggested Citation

Leung, Mark T. and Chen, An-Sing and Daouk, Hazem, Forecasting Exchange Rates Using General Regression Neural Networks (April 1999). Available at SSRN: https://ssrn.com/abstract=200448 or http://dx.doi.org/10.2139/ssrn.200448

Mark T. Leung (Contact Author)

University of Texas at San Antonio - Department of Management Science and Statistics ( email )

San Antonio, TX
United States

An-Sing Chen

National Chung Cheng University - Department of Finance ( email )

Chia-Yi, Taiwan 621
China
+011 886 5 272 0411 (Phone)
+011 886 5 272 0818 (Fax)

Hazem Daouk

Cornell University - School of Applied Economics and Management ( email )

446 Warren Hall
Ithaca, NY 14853
United States
331-45-78-63-88 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/hd35/

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