Bicorrelations and cross-bicorrelations as non-linearity tests and tools for exchange rate forecasting

Bicorrelations and cross-bicorrelations as non-linearity tests and tools for exchange rate forecasting

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Article ID: iaor20031241
Country: United Kingdom
Volume: 20
Issue: 3
Start Page Number: 181
End Page Number: 196
Publication Date: Apr 2001
Journal: International Journal of Forecasting
Authors: ,
Keywords: finance & banking
Abstract:

This paper proposes and implements a new methodology for forecasting time series, based on bicorrelations and cross-bicorrelations. It is shown that the forecasting technique arises as a natural extension of, and as a complement to, existing univariate and multivariate non-linearity tests. The formulations are essentially modified autoregressive or vector autoregressive models respectively, which can be estimated using ordinary least squares. The techniques are applied to a set of high-frequency exchange rate returns, and their out-of-sample forecasting performance is compared to that of other time series models.

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