A Hybrid Approach to Predicting Foreign Exchange Rates
A Hybrid Approach to Predicting Foreign Exchange Rates

Summary/Abstract: Independent Component Analysis (ICA) and Singular Spectrum Analysis (SSA) are two nonparametric methods, based upon a matrix spectral decomposition. In this paper, a hybrid ICA-SSA approach is used for predicting foreign exchange rates. The primarily role of ICA is to reveal certain fundamental factors behind several parallel series of foreign exchange rates. More accurate predictions can be performed via these independent components, after their separation. MSSA is employed to compute forecasts of independent factors. Afterwards, these forecasts of underlying factors are remixed into the forecasts of observable foreign exchange rates.

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