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Foreign Exchange Rates: A Research Overview of the Latest Prediction Techniques

Prominent structural models for exchange rate determination Interest parity rules Purchasing power parity rule Monetary model of exchange rates Asset-pricing approach to exchange rate determination A common problem of the models Nonlinearity of the exchange rates Causes of nonlinearity of the exchange rates Nonlinear models in the literature Machine learning Bias-variance trade-off Model validation Model types: supervised models vs. unsupervised models Comparing the predictive powers of models The Fama equation Purely time series TAR and STR models Structural TAR and STR models Lasso, Ridge, and Elastic Net regressions Should we focus on sign estimations rather than point estimations?CART analysis Decision trees and random forests Predicting the sign of exchange rates with a random forest Final remarks Bibliography

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