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Predictive Abilities of Machine Learning and Deep Learning Approaches for Exchange Rate Prediction

Author

Listed:
  • Furkan TURKOGLU
  • Eda GOCECEK
  • Yavuz YUMRUKUZ

Abstract

This study evaluates the efficacy of forecasting models in predicting USD/TRY exchange rate fluctuations. We assess Support Vector Machine (SVM), XGBoost, Long Short-Term Memory (LSTM), and Gated Recurrent Unit (GRU) models with 96 and 21 feature sets. Data from 01.01.2010 to 30.04.2024 were sourced from Bloomberg, CBRT, and BDDK. Findings indicate that LSTM and GRU models outperform traditional models, with GRU showing the highest predictive accuracy. SVM performs poorly with highdimensional data, while XGBoost offers moderate predictive power but lacks in capturing intricate patterns. This study highlights the importance of model and feature selection in financial time series forecasting and underscores the advantages of advanced neural networks. The results provide valuable insights for analysts and policymakers in developing robust economic forecasting models.

Suggested Citation

  • Furkan TURKOGLU & Eda GOCECEK & Yavuz YUMRUKUZ, 2024. "Predictive Abilities of Machine Learning and Deep Learning Approaches for Exchange Rate Prediction," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 18(2), pages 186-210.
    • Handle: RePEc:bdd:journl:v:18:y:2024:i:2:p:186-210
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    More about this item

    Keywords

    Exchange Rate; Machine Learning; Deep Learning; Time Series Forecasting; Nelson Siegel Model; Yield Curve.;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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