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

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Hinich, M. J. (2001) Bicorrelations and cross-bicorrelations as non-linearity tests and tools for exchange rate forecasting. Journal of Forecasting, 20 (3). pp. 181-196. ISSN 0277-6693 doi: 10.1002/1099-131X(200104)20:3<181::AID-FOR781>3.0.CO;2-R

Abstract/Summary

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