Wavelet-based relevance vector regression model coupled with phase space reconstruction for exchange rate forecasting

Shian Chang Huang, Chia Hsun Hsieh

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

Due to the high risk associated with international transactions, exchange rate forecasting is a challenging and important field in modern time series analysis. The difficulty in forecasting arises from the nonlinearity and non-stationarity inherent in exchange rate dynamics. To address these problems, this study proposes a hybrid model that couples two effective feature extraction techniques, phase space reconstruction, and wavelet analysis, with a Relevance Vector Regression (RVR) model to forecast chaotic exchange rates. The time series inputs are first mapped into high-dimension phase space, and then the phase space signal is decomposed on a wavelet basis to analyze its dynamics under various frequencies. Finally, each wavelet component is fed into a local RVR to perform non-parametric regression and forecasting. Compared with other forecasting models, such as support vector machines (SVR), RVR, GJR-GARCH or pure wavelet-base models, the proposed model performs best and statistically improves forecasting performance under root mean square error (RMSE), mean absolute error (MAE) and directional symmetry (DS).

Original languageEnglish
Pages (from-to)1917-1930
Number of pages14
JournalInternational Journal of Innovative Computing, Information and Control
Volume8
Issue number3 A
Publication statusPublished - 2012 Mar 1

All Science Journal Classification (ASJC) codes

  • Software
  • Theoretical Computer Science
  • Information Systems
  • Computational Theory and Mathematics

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