Nonlinear time series and neural-network models of exchange rates between the US dollar and major currencies

David E. Allen, Michael McAleer, Shelton Peiris, Abhay Singh

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper features an analysis of major currency exchange rate movements in relation to the US dollar, as constituted in US dollar terms. Euro, British pound, Chinese yuan, and Japanese yen are modelled using a variety of non-linear models, including smooth transition regression models, logistic smooth transition regressions models, threshold autoregressive models, nonlinear autoregressive models, and additive nonlinear autoregressive models, plus Neural Network models. The models are evaluated on the basis of error metrics for twenty day out-of-sample forecasts using the mean average percentage errors (MAPE). The results suggest that there is no dominating class of time series models, and the different currency pairs relationships with the US dollar are captured best by neural net regression models, over the ten year sample of daily exchange rate returns data, from August 2005 to August 2015.
LanguageEnglish
Article number7
Number of pages14
JournalRisks
Volume4
Issue number1
DOIs
Publication statusPublished - 16 Mar 2016
Externally publishedYes

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Nonlinear time series
Regression model
Currency
Neural networks
Exchange rates
Network model
Autoregressive model
Smooth transition regression
Out-of-sample forecasting
Threshold autoregressive model
Neural nets
Logistics
Time series models
Exchange rate returns

Bibliographical note

Copyright 2016 by the authors; licensee MDPI, Basel, Switzerland. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • non linear models
  • time series
  • non-parametric
  • smooth-transition regression models
  • neural networks
  • GMDH shell

Cite this

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abstract = "This paper features an analysis of major currency exchange rate movements in relation to the US dollar, as constituted in US dollar terms. Euro, British pound, Chinese yuan, and Japanese yen are modelled using a variety of non-linear models, including smooth transition regression models, logistic smooth transition regressions models, threshold autoregressive models, nonlinear autoregressive models, and additive nonlinear autoregressive models, plus Neural Network models. The models are evaluated on the basis of error metrics for twenty day out-of-sample forecasts using the mean average percentage errors (MAPE). The results suggest that there is no dominating class of time series models, and the different currency pairs relationships with the US dollar are captured best by neural net regression models, over the ten year sample of daily exchange rate returns data, from August 2005 to August 2015.",
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Nonlinear time series and neural-network models of exchange rates between the US dollar and major currencies. / Allen, David E.; McAleer, Michael; Peiris, Shelton; Singh, Abhay.

In: Risks, Vol. 4, No. 1, 7, 16.03.2016.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

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AU - McAleer, Michael

AU - Peiris, Shelton

AU - Singh, Abhay

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AB - This paper features an analysis of major currency exchange rate movements in relation to the US dollar, as constituted in US dollar terms. Euro, British pound, Chinese yuan, and Japanese yen are modelled using a variety of non-linear models, including smooth transition regression models, logistic smooth transition regressions models, threshold autoregressive models, nonlinear autoregressive models, and additive nonlinear autoregressive models, plus Neural Network models. The models are evaluated on the basis of error metrics for twenty day out-of-sample forecasts using the mean average percentage errors (MAPE). The results suggest that there is no dominating class of time series models, and the different currency pairs relationships with the US dollar are captured best by neural net regression models, over the ten year sample of daily exchange rate returns data, from August 2005 to August 2015.

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