IDEAS home Printed from https://ideas.repec.org/a/taf/apmtfi/v26y2019i1p69-100.html
   My bibliography  Save this article

Non-Linear Interactions and Exchange Rate Prediction: Empirical Evidence Using Support Vector Regression

Author

Listed:
  • Peng Yaohao
  • Pedro Henrique Melo Albuquerque

Abstract

This paper analysed the prediction of the spot exchange rate of 10 currency pairs using support vector regression (SVR) based on a fundamentalist model composed of 13 explanatory variables. Different structures of non-linear dependence introduced by nine different Kernel functions were tested and the predictions were compared to the Random Walk benchmark. We checked the explanatory power gain of SVR models over the Random Walk by applying White’s Reality Check Test. The results showed that the majority of SVR models achieved better out-of-sample performance than the Random Walk, but in overall they failed to achieve statistical significance of predictive superiority. Furthermore, we observed that non-mainstream Kernel functions performed better than the ones commonly used in the machine-learning literature, a finding that can provide new insights regarding machine-learning methods applications and the predictability of exchange rates using non-linear interactions between the predictors.

Suggested Citation

  • Peng Yaohao & Pedro Henrique Melo Albuquerque, 2019. "Non-Linear Interactions and Exchange Rate Prediction: Empirical Evidence Using Support Vector Regression," Applied Mathematical Finance, Taylor & Francis Journals, vol. 26(1), pages 69-100, January.
  • Handle: RePEc:taf:apmtfi:v:26:y:2019:i:1:p:69-100
    DOI: 10.1080/1350486X.2019.1593866
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1350486X.2019.1593866
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/1350486X.2019.1593866?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Flavio Barboza & Geraldo Nunes Silva & José Augusto Fiorucci, 2023. "A review of artificial intelligence quality in forecasting asset prices," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(7), pages 1708-1728, November.
    2. Nagula, Pavan Kumar & Alexakis, Christos, 2022. "A new hybrid machine learning model for predicting the bitcoin (BTC-USD) price," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    3. Mei-Li Shen & Cheng-Feng Lee & Hsiou-Hsiang Liu & Po-Yin Chang & Cheng-Hong Yang, 2021. "An Effective Hybrid Approach for Forecasting Currency Exchange Rates," Sustainability, MDPI, vol. 13(5), pages 1-29, March.
    4. Julio E. Sandubete & León Beleña & Juan Carlos García-Villalobos, 2023. "Testing the Efficient Market Hypothesis and the Model-Data Paradox of Chaos on Top Currencies from the Foreign Exchange Market (FOREX)," Mathematics, MDPI, vol. 11(2), pages 1-29, January.
    5. Pavan Kumar Nagula & Christos Alexakis, 2022. "A Novel Machine Learning Approach for Predicting the NIFTY50 Index in India," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 28(3), pages 155-170, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:26:y:2019:i:1:p:69-100. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAMF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.