A note on forecasting exchange rates using a cluster technique
by Marcos Alvarez-Diaz
International Journal of Business Forecasting and Marketing Intelligence (IJBFMI), Vol. 1, No. 1, 2008

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.

Online publication date: Fri, 17-Oct-2008

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