Linear and non-linear (non-)forecastability of high-frequency exchange rates

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 (1997) Linear and non-linear (non-)forecastability of high-frequency exchange rates. Journal of Forecasting, 16 (2). pp. 125-145. ISSN 0277-6693 doi: 10.1002/(SICI)1099-131X(199703)16:2<125::AID-FOR648>3.0.CO;2-T

Abstract/Summary

This paper forecasts Daily Sterling exchange rate returns using various naive, linear and non-linear univariate time-series models. The accuracy of the forecasts is evaluated using mean squared error and sign prediction criteria. These show only a very modest improvement over forecasts generated by a random walk model. The Pesaran–Timmerman test and a comparison with forecasts generated artificially shows that even the best models have no evidence of market timing ability.