A self-organising mixture autoregressive network for FX time series modelling and prediction

Abstract

Nowadays a great deal of effort has been made in order to gain advantages in foreign exchange (FX) rates predictions. However, most existing techniques seldom excel the simple random walk model in practical applications. This paper describes a self-organising network formed on the basis of a mixture of adaptive autoregressive models. The proposed network, termed self-organising mixture autoregressive (SOMAR) model, can be used to describe and model nonstationary, nonlinear time series by means of a number of underlying local regressive models. An autocorrelation coefficient-based measure is proposed as the similarity measure for assigning input samples to the underlying local models. Experiments on both benchmark time series and several FX rates have been conducted. The results show that the proposed method consistently outperforms other local time series modelling techniques on a range of performance measures including the mean-square-error, correct trend predication percentage, accumulated profit and model variance.