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On forecasting exchange rates using neural networks

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Author Info

  • Philip Hans Franses
  • Paul van Homelen

Abstract

The paper considers the modelling, description and forecasting of four daily exchange rate returns relative to the Dutch guilder using artificial neural network models (ANNs). Based on simulations it is argued (i) that neglected GARCH does not lead to spuriously successful ANNs and (ii) that if there is some form of nonlinearity other than GARCH, ANNs will exploit this for improved forecasting. For the sample data it is found that ANNs do not yield favourable in-sample fits or forecasting performance. These results are interpreted as indicating that the nonlinearity often found in exchange rates is most likely due to GARCH and therefore ANNs are recommended as a diagnostic for mean nonlinearity.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/096031098332628
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 8 (1998)
Issue (Month): 6 ()
Pages: 589-596

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Handle: RePEc:taf:apfiec:v:8:y:1998:i:6:p:589-596

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Cited by:
  1. Michael Dietrich, 2005. "Using simple neural networks to analyse firm activity," Working Papers 2005014, The University of Sheffield, Department of Economics, revised Jul 2005.
  2. Ahmad Zubaidi Baharumshah & Liew Khim Sen & Lim Kian Ping, 2003. "Exchange Rates Forecasting Model: An Alternative Estimation Procedure," International Finance 0307005, EconWPA.
  3. Cem Kadilar & Muammer Simsek & Cagdas Hakan Aladag, 2009. "Forecasting The Exchange Rate Series With Ann: The Case Of Turkey," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 9(1), pages 17-29, May.
  4. Stavros Degiannakis & Evdokia Xekalaki, 2007. "Assessing the performance of a prediction error criterion model selection algorithm in the context of ARCH models," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 149-171.
  5. Malhotra, Rashmi & Malhotra, D. K., 2003. "Evaluating consumer loans using neural networks," Omega, Elsevier, vol. 31(2), pages 83-96, April.

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