Nonlinear deterministic forecasting of daily dollar exchange rates

We perform out-of-sample predictions on several dollar exchange rate return s by using time-delay embedding techniques and a local linear predictor. We compared our predictions with those by a mean value predictor. Some of our predictions of the exchange rate returns outperform the predictions of the same series by the mean value predictor. However, these improvements were not statistically significant. Another interesting result in this paper whi ch was obtained by using a recently developed technique of nonlinear dynami cs is that all exchange rate return series we tested have a very high embed ding dimension. Additionally, evidence indicates that these series are like ly generated by high dimensional systems with measurement noise or by high dimensional nonlinear stochastic systems, that is, nonlinear deterministic systems with dynamic noise. (C) 1999 Elsevier Science B.V. All rights reser ved.