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Nearest Neighbor Foreign Exchange Rate Forecasting With Mahalanobis Distance, Vindya Kumari Pathirana

USF Tampa Graduate Theses and Dissertations

Foreign exchange (FX) rate forecasting has been a challenging area of study in the past. Various linear and nonlinear methods have been used to forecast FX rates. As the currency data are nonlinear and highly correlated, forecasting through nonlinear dynamical systems is becoming more relevant. The nearest neighbor (NN) algorithm is one of the most commonly used nonlinear pattern recognition and forecasting methods that outperforms the available linear forecasting methods for the high frequency foreign exchange data. The basic idea behind the NN is to capture the local behavior of the data by selecting the instances having similar dynamic behavior. …