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"An application of deep learning for exchange rate forecasting"

Author

Listed:
  • Oscar Claveria

    (AQR IREA, University of Barcelona (UB). Department of Econometrics, Statistics and Applied Economics, University of Barcelona, Diagonal 690, 08034 Barcelona, Spain. Tel.: +34-934021825)

  • Enric Monte

    (Department of Signal Theory and Communications, Polytechnic University of Catalunya (UPC))

  • Petar Soric

    (Faculty of Economics & Business University of Zagreb.)

  • Salvador Torra

    (Riskcenter–IREA, University of Barcelona (UB).)

Abstract

This paper examines the performance of several state-of-the-art deep learning techniques for exchange rate forecasting (deep feedforward network, convolutional network and a long short-term memory). On the one hand, the configuration of the different architectures is clearly detailed, as well as the tuning of the parameters and the regularisation techniques used to avoid overfitting. On the other hand, we design an out-of-sample forecasting experiment and evaluate the accuracy of three different deep neural networks to predict the US/UK foreign exchange rate in the days after the Brexit took effect. Of the three configurations, we obtain the best results with the deep feedforward architecture. When comparing the deep learning networks to time-series models used as a benchmark, the obtained results are highly dependent on the specific topology used in each case. Thus, although the three architectures generate more accurate predictions than the time-series models, the results vary considerably depending on the specific topology. These results hint at the potential of deep learning techniques, but they also highlight the importance of properly configuring, implementing and selecting the different topologies.

Suggested Citation

  • Oscar Claveria & Enric Monte & Petar Soric & Salvador Torra, 2022. ""An application of deep learning for exchange rate forecasting"," IREA Working Papers 202201, University of Barcelona, Research Institute of Applied Economics, revised Jan 2022.
  • Handle: RePEc:ira:wpaper:202201
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    References listed on IDEAS

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    More about this item

    Keywords

    Forecasting; Exchange rates; Deep learning; Deep neural networks; Convolutional networks; Long short-term memory. JEL classification: C45; C58; E47; F31; G17.;
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