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Non-Linear Forecasting Methods: Some Applications to the Analysis of Financial Series

FEDEA Working Paper No. 2002-01

24 Pages Posted: 14 Feb 2002  

Oscar Bajo‐Rubio

University of Castilla-La Mancha

Simon Sosvilla-Rivero

Complutense Institute for International Studies

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Date Written: January 2002

Abstract

The evolution of financial data shows a high degree of volatility of the series, coupled with increasing difficulties of forecasting the shorter is the time horizon, when using standard (i.e., based on linear models) forecasting methods. Some alternative forecasting methods for non-linear time series, based on the literature on complex dynamic systems, have been recently developed, which can be particularly useful in the analysis of financial time series. In this paper we present a summary of some of these new techniques, and then show some applications to the analysis of several financial series (i.e., exchange rates, stock prices, and interest rates), which illustrate the usefulness of the approach. Since non-linear forecasting methods require the usage of very long time series, the availability of high-frequency data for these variables make them the best candidates among economic time series for the application of this methodology.

Keywords: Nearest-neighbour prediction methods, Financial markets, Technical trading rules

JEL Classification: C53, G12, G15

Suggested Citation

Bajo‐Rubio, Oscar and Sosvilla-Rivero, Simon and Fernández Rodríguez, Fernando, Non-Linear Forecasting Methods: Some Applications to the Analysis of Financial Series (January 2002). FEDEA Working Paper No. 2002-01. Available at SSRN: https://ssrn.com/abstract=300402 or http://dx.doi.org/10.2139/ssrn.300402

Oscar Bajo-Rubio

University of Castilla-La Mancha ( email )

Facultad de Derecho y Ciencias Sociales
Ronda de Toledo, s/n
Ciudad Real, E-13071
Spain
+34 926 295300 (Phone)
+34 926 295211 (Fax)

HOME PAGE: http://www.uclm.es/profesorado/obajo

Simon Sosvilla-Rivero (Contact Author)

Complutense Institute for International Studies ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

Campus de Tafira
E-35017 Las Palmas
Spain
+34 928 45 18 02 (Phone)
+34 928 45 18 29 (Fax)

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