A note on forecasting exchange rates using a cluster technique

Marcos Alvarez-Diaz

International Journal of Business Forecasting and Marketing Intelligence, 2008, vol. 1, issue 1, 68-81

Abstract: In this note, we propose a cluster method as a simple predictive tool to forecast exchange rates (specifically the Japanese Yen and the British Pound against the US Dollar). The general goal in this study is two-fold. First of all, we verify whether or not we can accurately predict the exchange rate movements using the suggested method. Secondly, we use the generated sign predictions to build a simple trading strategy and check if we can obtain above-normal profits in the foreign exchange market. Our results reveal a sign forecasting ability for one-period-ahead which is lost when more periods ahead are considered. On the other hand, our simple trading strategy does not obtain above-normal profits.

Keywords: cluster forecasting; exchange rate forecasting; foreign exchange market; trading strategies; exchange rates; Japanese yen; UK pound; US dollar; exchange rate movements. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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