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Combining wavelet decomposition with machine learning to forecast gold returns

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  • Risse, Marian

Abstract

This paper combines the discrete wavelet transform with support vector regression for forecasting gold-price dynamics. The advantages of this approach are investigated using a relatively small set of economic and financial predictors. I measure model performance by differentiating between a statistically-motivated out-of-sample forecasting exercise and an economically-motivated trading strategy. Disentangling the predictors with respect to their time and frequency domains leads to improved forecasting performance. The results are robust compared to alternative forecasting approaches. My findings on the relative importances of such wavelet decompositions suggest that the influences of short-term and long-term trends are not stable over the full evaluation period.

Suggested Citation

  • Risse, Marian, 2019. "Combining wavelet decomposition with machine learning to forecast gold returns," International Journal of Forecasting, Elsevier, vol. 35(2), pages 601-615.
  • Handle: RePEc:eee:intfor:v:35:y:2019:i:2:p:601-615
    DOI: 10.1016/j.ijforecast.2018.11.008
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    Cited by:

    1. Czudaj, Robert L., 2019. "Crude oil futures trading and uncertainty," Energy Economics, Elsevier, vol. 80(C), pages 793-811.

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