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High‐Frequency Exchange‐Rate Prediction With An Artificial Neural Network

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  • Taufiq Choudhry
  • Frank McGroarty
  • Ke Peng
  • Shiyun Wang

Abstract

This paper examines how market microstructure variables can be used to forecast foreign exchange (FX) rates at frequencies of one to several minutes. We use a unique FX dataset of global inter‐dealer electronic transactions and applied the artificial neural network (ANN) as the predicting model. The immediately preceding bid and ask prices are significant factors in these predictions, which is in keeping with market microstructure theory. These microstructure factors have not been tested in an ANN model before. High‐frequency trading strategies based on the ANN model are shown to be profitable even when transaction costs are included. Copyright © 2012 John Wiley & Sons, Ltd.

Suggested Citation

  • Taufiq Choudhry & Frank McGroarty & Ke Peng & Shiyun Wang, 2012. "High‐Frequency Exchange‐Rate Prediction With An Artificial Neural Network," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 19(3), pages 170-178, July.
    • Handle: RePEc:wly:isacfm:v:19:y:2012:i:3:p:170-178
    DOI: 10.1002/isaf.1329
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    References listed on IDEAS

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