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Predicting Foreign Exchange Rate Movements: An Application of the Ensemble Method

Author

Listed:
  • Charles Raoul Tchuinkam Djemo
  • Joel Hinaunye Eita
  • John Weirstrass Muteba Mwamba

    (University of Johannesburg, South Africa)

Abstract

This paper investigates the relationship between macroeconomics variables and foreign exchange rate direction and predicts this direction using an ensemble method. We classified exchange rate movements into two classes, appreciation and depreciation. We employed monthly data for macroeconomic variables and the currency price of the US dollar, Euro, Japanese Yen and British pound against the South African rand. The results show that the ensemble method provides an accurate prediction for the appreciation of the Euro, US dollar and British pound and depreciation of the Japanese Yen. Stock price and terms of trade are more responsible for appreciating the US dollar.

Suggested Citation

  • Charles Raoul Tchuinkam Djemo & Joel Hinaunye Eita & John Weirstrass Muteba Mwamba, 2021. "Predicting Foreign Exchange Rate Movements: An Application of the Ensemble Method," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 11(2), pages 58-69.
    • Handle: RePEc:afj:journ3:v:11:y:2021:i:2:p:58-69
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin_v11_n2_a4
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    More about this item

    Keywords

    Prediction; foreign exchange rate; ensemble method; machine learning;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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