On the use of Nearest Neighbors in finance

Dominique Guégan and Nicolas Huck ()

Finance, 2005, vol. 26, issue 2, 67-86

Abstract: Nearest Neighbors are a non linear non parametric forecasting method often used in finance. This work focus on the way Nearest Neighbors are applied in the existing literature. We observe that the selection?s methods of the embedding dimension and of the number of neighbors via phase space reconstruction and in sample predictions lead to distort the idea underlying the Nearest Neighbors approach. Propositions for a better usage of Nearest Neighbors are given.

Date: 2005
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Working Paper: On the use of nearest neighbors in finance (2005)
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