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A note on forecasting exchange rates using a cluster technique


  • Marcos Alvarez-Diaz


In this note, we propose a cluster method as a simple predictive tool to forecast exchange rates (specifically the Japanese Yen and the British Pound against the US Dollar). The general goal in this study is two-fold. First of all, we verify whether or not we can accurately predict the exchange rate movements using the suggested method. Secondly, we use the generated sign predictions to build a simple trading strategy and check if we can obtain above-normal profits in the foreign exchange market. Our results reveal a sign forecasting ability for one-period-ahead which is lost when more periods ahead are considered. On the other hand, our simple trading strategy does not obtain above-normal profits.

Suggested Citation

  • Marcos Alvarez-Diaz, 2008. "A note on forecasting exchange rates using a cluster technique," International Journal of Business Forecasting and Marketing Intelligence, Inderscience Enterprises Ltd, vol. 1(1), pages 68-81.
  • Handle: RePEc:ids:ijbfmi:v:1:y:2008:i:1:p:68-81

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    Cited by:

    1. nnamdi, Kelechi & ifionu, Ebele, 2013. "Exchange rate volatility and exchange rate uncertainty in Nigeria: a financial econometric analysis (1970- 2012)," MPRA Paper 48316, University Library of Munich, Germany, revised 2013.


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