Foreign Exchange Rates: A Research Overview of the Latest Prediction Techniques
Prominent structural models for exchange rate determinationInterest parity rulesPurchasing power parity ruleMonetary model of exchange ratesAsset-pricing approach to exchange rate determinationA common problem of the modelsNonlinearity of the exchange ratesCauses of nonlinearity of the exchange ratesNonlinear models in the literatureMachine learningBias-variance trade-offModel validationModel types: supervised models vs. unsupervised modelsComparing the predictive powers of modelsThe Fama equationPurely time series TAR and STR modelsStructural TAR and STR modelsLasso, Ridge, and Elastic Net regressionsShould we focus on sign estimations rather than point estimations?CART analysisDecision trees and random forestsPredicting the sign of exchange rates with a random forestFinal remarksBibliography