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Multivariate Nearest-Neighbor Forecasts of EMS Exchange Rates

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Author Info
Mizrach, B

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Abstract

Exchange rate modelling has been a persistent puzzle for international economists. Forecasts from popular models for the exchange rate generally fail to improve upon the random walk out-of-sample. While a multivariate nonparametric approach provides useful information about exchange rates, the model produces forecasts superior to the random walk for only one of the three EMS currencies examined. Using a statistic developed in Mizrach (1991), I find that the forecast improvement, a 4.5 percent reduction in mean squared error for the Lira in daily returns, is not statistically significant. A cross-validation exercise suggests that the improvement is also not robust. Copyright 1992 by John Wiley & Sons, Ltd.

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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 7 (1992)
Issue (Month): S (Suppl. Dec.)
Pages: S151-63
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Handle: RePEc:jae:japmet:v:7:y:1992:i:s:p:s151-63

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  1. Michael Pippenger & Gregory Goering, 1998. "Exchange Rate Forecasting: Results from a Threshold Autoregressive Model," Open Economies Review, Springer, vol. 9(2), pages 157-170, April. [Downloadable!] (restricted)
  2. Angelos Kanas, 2003. "Non-linear forecasts of stock returns," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(4), pages 299-315. [Downloadable!]
  3. James Hamilton, 1999. "A Parametric Approach to Flexible Nonlinear Inference," University of California at San Diego, Economics Working Paper Series 1999-03, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  4. Abdol S. Soofi & Liangyue Cao, 2001. "Capital Account Liberalization, Currency Markets' Volatility and Prediction: Financial Implications of the P.R. of China's Accession to the WTO," Finance Working Papers 218, East Asian Bureau of Economic Research. [Downloadable!]
  5. Manzan, S., 2002. "Model Selection for Nonlinear Time Series," CeNDEF Working Papers 02-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
  6. Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero & Julián Andrada-Félix, . "Technical Analysis in Foreign Exchange Markets: Linear Versus Nonlinear Trading Rules," Working Papers on International Economics and Finance 00-02, FEDEA. [Downloadable!]
  7. Oscar Bajo-Rubio & Simón Sosvilla-Rivero & Fernando Fernández-Rodríguez, . "Non-Linear Forecasting Methods: Some Applications to the Analysis of Financial Series," Working Papers 2002-01, FEDEA. [Downloadable!]
  8. John Barkoulas & Christopher F. Baum & Atreya Chakraborty, 1996. "Nearest-Neighbor Forecasts of U.S. Interest Rates," Boston College Working Papers in Economics 313., Boston College Department of Economics, revised 01 Apr 2003. [Downloadable!]
  9. Óscar Bajo Rubio & Simón Sosvilla Rivero & Fernando Fernández Rodríguez, 2000. "Asymmetry In The Ems: New Evidence Based On Non-Linear Forecasts," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0001, Departamento de Economía - Universidad Pública de Navarra. [Downloadable!]
    Other versions:
  10. Bruce Mizrach, 1996. "Mean Reversion in EMS Exchange Rates," Departmental Working Papers 199525, Rutgers University, Department of Economics. [Downloadable!]
  11. F. FernÁndez-RodrÍguez & S. Sosvilla-Rivero & J. Andrada-FÉlix, 2003. "Technical analysis in foreign exchange markets: evidence from the EMS," Applied Financial Economics, Taylor and Francis Journals, vol. 13(2), pages 113-122, January. [Downloadable!] (restricted)
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