Nearest-Neighbour Predictions in Foreign Exchange Markets

FEDEA Working Paper No. 2002-05

36 Pages Posted: 14 Feb 2002  

Fernando Fernández Rodríguez

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

Simon Sosvilla-Rivero

Complutense Institute for International Studies

Julián Andrada Félix

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

Date Written: January 2002

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.

Keywords: Nearest-neighbour prediction methods, Exchange rates, Technical trading rules

JEL Classification: C53, F31, G12, G15

Suggested Citation

Fernández Rodríguez, Fernando and Sosvilla-Rivero, Simon and Andrada Félix, Julián, Nearest-Neighbour Predictions in Foreign Exchange Markets (January 2002). FEDEA Working Paper No. 2002-05. Available at SSRN: https://ssrn.com/abstract=300404 or http://dx.doi.org/10.2139/ssrn.300404

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)

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/

Julián Andrada Félix

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

E-35017 Las Palmas
Spain
+34 928 45 59 89 (Phone)
+34 928 45 18 29 (Fax)

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