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High frequency exchange rate prediction with an artificial neural network

High frequency exchange rate prediction with an artificial neural network
High frequency exchange rate prediction with an artificial neural network
This paper examines how market microstructure variables can be used to forecast foreign exchange rates at frequencies of one to several minutes. We use a unique foreign exchange (FX) dataset of global inter-dealer electronic transactions and applied the Artificial Neural Network (ANN) as the predicting model. The immediately preceding bid and ask prices are significant factors in these predictions, which is in keeping with market microstructure theory. These microstructure factors have not been tested in ANN model before. High frequency trading strategies based on ANN model are shown to be profitable even when transaction costs are included.
1055-615X
170-178
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
Peng, Ke
4ba591b1-6929-468c-a9a7-c948297e3aa0
Wang, Shiyun
819027ab-c7c6-45a8-b3ba-d4331bbc4189
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
Peng, Ke
4ba591b1-6929-468c-a9a7-c948297e3aa0
Wang, Shiyun
819027ab-c7c6-45a8-b3ba-d4331bbc4189

Choudhry, Taufiq, McGroarty, Frank, Peng, Ke and Wang, Shiyun (2012) High frequency exchange rate prediction with an artificial neural network. Intelligent Systems in Accounting, Finance and Management, 19 (3), 170-178.

Record type: Article

Abstract

This paper examines how market microstructure variables can be used to forecast foreign exchange rates at frequencies of one to several minutes. We use a unique foreign exchange (FX) dataset of global inter-dealer electronic transactions and applied the Artificial Neural Network (ANN) as the predicting model. The immediately preceding bid and ask prices are significant factors in these predictions, which is in keeping with market microstructure theory. These microstructure factors have not been tested in ANN model before. High frequency trading strategies based on ANN model are shown to be profitable even when transaction costs are included.

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More information

Published date: 1 July 2012
Organisations: Centre for Digital, Interactive & Data Driven Marketing

Identifiers

Local EPrints ID: 340754
URI: http://eprints.soton.ac.uk/id/eprint/340754
ISSN: 1055-615X
PURE UUID: 46fe43cf-9f59-4007-9ab3-99474d27314b
ORCID for Taufiq Choudhry: ORCID iD orcid.org/0000-0002-0463-0662
ORCID for Frank McGroarty: ORCID iD orcid.org/0000-0003-2962-0927

Catalogue record

Date deposited: 02 Jul 2012 13:28
Last modified: 11 Dec 2021 03:53

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Contributors

Author: Taufiq Choudhry ORCID iD
Author: Frank McGroarty ORCID iD
Author: Ke Peng
Author: Shiyun Wang

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