PREDICTION AND VOLATILITY OF BLACK MARKET CURRENCIES: EVIDENCE FROM RENMINBI AND RIAL EXCHANGE RATES

Abdol Soofi and Liangyue Cao
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Liangyue Cao: Department of Mathematics, University of Western Australia, Nedlands, WA, Australia

International Journal of Theoretical and Applied Finance (IJTAF), 2002, vol. 05, issue 06, 659-666

Abstract: We perform out-of-sample prediction on both fixed and black market Chinese renminbi/US dollar, and black market rial/US dollar exchange rates by using the time-delay embedding technique and the local linear prediction method. We also predict an artificially generated chaotic time series with and without noise for the purpose of validation of the methods used in this study. In all examples tested, our prediction results significantly outperform those by the benchmark mean value predictor based on a statistic defined by Harveyet al.[11]. Another interesting result found in this paper is that one may use the embedding dimension as a measure of volatility of a financial asset.

Keywords: Renminbi/US dollar exchange rate; time-delay embedding; nonlinear prediction; volatility (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1142/S0219024902001638

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