Malliaris, A.G. and Malliaris, Mary (2011): Are foreign currency markets interdependent? evidence from data mining technologies. Forthcoming in: Stochastics: Finance and Risk No. 2012
Download (510kB) | Preview
This study uses two data mining methodologies: Classification and Regression Trees (C&RT) and Generalized Rule Induction (GRI) to uncover patterns among daily cash closing prices of eight currency markets. Data from 2000 through 2009 is used, with the last year held out to test the robustness of the rules found in the previous nine years. Results from the two methodologies are contrasted. A number of rules which perform well in both the training and testing years are discussed as empirical evidence of interdependence among foreign currency markets. The mechanical rules identified in this paper can usefully supplement other types of financial modeling of foreign currencies.
|Item Type:||MPRA Paper|
|Original Title:||Are foreign currency markets interdependent? evidence from data mining technologies|
|Keywords:||Foreign Currency Markets|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods; Simulation Methods
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C65 - Miscellaneous Mathematical Tools
C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C45 - Neural Networks and Related Topics
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||A. G. Malliaris|
|Date Deposited:||08. Dec 2011 18:24|
|Last Modified:||21. Feb 2013 08:52|
Albanis, G. and Batchelor, R. (2007) Combining Heterogeneous Classifiers For Stock Selection. Intelligent Systems in Accounting, Finance & Management, 15: 1–21. doi: 10.1002/isaf.282
Batyrshin, I., Herrera-Avelar, R., Sheremetov, L, and Panova, A. (2005) Association Networks In Time Series Data Mining, Proceedings of the Fuzzy Information Processing Society, pgs 754 – 759.
Batyrshin, I., Herrera-Avelar, R., Sheremetov, L, and Panova, A. (2007) Moving Approximation Transform and Local Trend Associations in Time Series Data Bases. Perception-based Data Mining and Decision Making in Economics and Finance, Studies in Computational Intelligence, Springer, Berlin / Heidelberg.
Berry, M. and Linoff, G. (2004) Data Mining Techniques, Second Edition, Wiley Publishing Inc.
Bossomaier, T., Standish, R., Harre, M. (2010) Simulation of Trust in Client-Wealth Management Adviser Relationships, International Journal of Simulation and Process Modelling, 6(1), 40 – 49.
Campbell, J.Y., Medeiros, K.S., and Viceira, L.M. (2007), Global Currency Hedging, NBER Working Paper, No. W13088. Coffey, Niall, Hrung, Warren B. and Sarkar, Asani, (October 29, 2009), Capital Constraints, Counterparty Risk, and Deviations from Covered Interest Rate Parity. FRB of New York Staff Report No. 393. Available at SSRN: http://ssrn.com/abstract=1473377
Devereux, M.B., and Sutherland, A. (2007), Financial Globalization and Monetary Policy, IMF Working Paper.
Elyasiani, Elyas, and Kocagil, Ahmet (2001) Interdependence and Dynamics in Currency futures Markets: A Multivariate Analysis of Intraday Data. Journal of Banking & Finance, 25: 1161 – 1186.
Elyasiani, Elyas, Kocagil, Ahmet and Mansur, iqbal (2007) Information Transmission and Spillover in Currency Markets: A Generalized Variance Decomposition Analysis. The Quarterly Review of Economics and Finance, 47: 312-330.
Gadiraju, Pavan, (July 19, 2009), A Statistical Arbitrage FX Trading System Based on Short Term FX Volatility Swings Forecasting with Institutional Data on JPY Based Investment Flows Into US Markets. Available at SSRN: http://ssrn.com/abstract=1436209
Hand, D., Mannila, H., and Smyth, P. (2001) Principles of Data Mining, The MIT Press.
Jain, Apurv, (2010) Are Carry Trade Risks Systematic Risks Now? An Analysis of the Dynamics of Carry Trade Risks. Available at SSRN: http://ssrn.com/abstract=1546637
Òscar Jordà, Alan M. Taylor, (2009) The Carry Trade And Fundamentals: Nothing To Fear But Fear Itself, NBER Working Paper No. 15518.
Lane, P., and Milesi-Ferretti, G.M. (2001), The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries, Journal of International Economics, 55, 263-94.
Lane, P., and Milesi-Ferretti, G.M. (2006), The External Wealth of Nations Mark II, IMF Working Paper, No 06-69.
Loh, W.-Y. (2011), Classification and regression trees. Wiley Interdisciplinary Reviews: Data Mining and Knowledge Discovery, 1: 14–23. doi: 10.1002/widm.8
Kroencke, Tim-Alexander, Schindler, Felix and Schrimpf, Andreas, (March 20, 2011). International Diversification Benefits with Foreign Exchange Investment Styles CREATES Research Paper No. 2011-10. Available at SSRN: http://ssrn.com/abstract=1790764
Krugman, Paul R., and Maurice Obstfeld. (2009). International Economics Theory & Policy, 8th edition. Boston, MA: Addison Wesley.
Lee, Suk Hun and Malliaris, A. G. (2011) Currency Markets and International Interest Rate Parity in SURVEY OF INTERNATIONAL FINANCE, Kent Baker and Leigh Riddick, eds., Oxford University Press,. Available at SSRN: http://ssrn.com/abstract=1747111
Menkhoff, Lukas, Sarno, Lucio, Schmeling, Maik and Schrimpf, Andreas, (May 12, 2011) Currency Momentum Strategies. Available at SSRN: http://ssrn.com/abstract=1809776
Nikkin, Jussi, Sahlstrom, Petri, and Vahamaa, Sami (2006) Implied Volatility Linkages Among Major European Currencies. Journal of International Financial Markets, Institutions and Money, 16:87-103.
Orlov, Alexei (2009) A Cospectral Analysis of Exchange Rate Comovements During Asian Financial Crisis. Journal of International Financial Market, Institutions & Money, 19: 742-758.
Schmittmann, Jochen, Currency Hedging for International Portfolios (June 2010). IMF Working Papers, Vol., pp. 1-44, 2010. Available at SSRN: http://ssrn.com/abstract=1641006
Schneller, Warwick and Vanstone, Bruce James, (August 22, 2010) Predictable Responses in Currency Markets to Macroeconomic News: A Trading System Approach. 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: http://ssrn.com/abstract=1663429
Smyth P, Goodman RM. (1992). Information Theoretic Approach to Rule Induction From Databases. IEEE Transactions on Knowledge and Data Engineering. 4(4):301–316. doi: 10.1109/69.149926Tseng, C. (2007) Data Driven Modeling Of Co-Movement Among International Stock Market, Journal of Modeling in Management, 2007, 2(3), 195 – 207.
Wang, X., Smith-Miles, K., Hyndman, R. (2009). Rule Induction For Forecasting Method Selection: Meta-Learning The Characteristics Of Univariate Time Series, Neurocomputing, 72(10-12), 2581-2594.