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Modelling and forecasting by wavelets, and the application to exchange rates

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  • H. Wong
  • Wai-Cheung Ip
  • Zhongjie Xie
  • Xueli Lui
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    Abstract

    This paper investigates the modelling and forecasting method for non-stationary time series. Using wavelets, the authors propose a modelling procedure that decomposes the series as the sum of three separate components, namely trend, harmonic and irregular components. The estimates suggested in this paper are all consistent. This method has been used for the modelling of US dollar against DM exchange rate data, and ten steps ahead (2 weeks) forecasting are compared with several other methods. Under the Average Percentage of forecasting Error (APE) criterion, the wavelet approach is the best one. The results suggest that forecasting based on wavelets is a viable alternative to existing methods.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Applied Statistics.

    Volume (Year): 30 (2003)
    Issue (Month): 5 ()
    Pages: 537-553

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    Handle: RePEc:taf:japsta:v:30:y:2003:i:5:p:537-553

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    Cited by:
    1. Nowotarski, Jakub & Tomczyk, Jakub & Weron, Rafal, 2012. "Robust estimation and forecasting of the long-term seasonal component of electricity spot prices," MPRA Paper 42563, University Library of Munich, Germany.
    2. António Rua, 2011. "A wavelet approach for factor‐augmented forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(7), pages 666-678, November.
    3. Bruzda, Joanna, 2011. "Some aspects of the discrete wavelet analysis of bivariate spectra for business cycle synchronisation," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 5(16), pages 1-46.
    4. Joanna Janczura & Rafał Weron, 2012. "Efficient estimation of Markov regime-switching models: An application to electricity spot prices," AStA Advances in Statistical Analysis, Springer, vol. 96(3), pages 385-407, July.
    5. Weron, Rafal & Janczura, Joanna, 2010. "Efficient estimation of Markov regime-switching models: An application to electricity wholesale market prices," MPRA Paper 26628, University Library of Munich, Germany.
    6. Fernandez, Viviana, 2007. "Wavelet- and SVM-based forecasts: An analysis of the U.S. metal and materials manufacturing industry," Resources Policy, Elsevier, vol. 32(1-2), pages 80-89.

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