Regime switching models in the foreign exchange market

Wai-Mun Chia; Mengling Li; Huanhuan Zheng

doi:10.1007/978-3-319-07470-2_12

Regime switching models in the foreign exchange market

Wai-Mun Chia, Mengling Li, Huanhuan Zheng

Research output: Chapters, Conference Papers, Creative and Literary Works › RGC 12 - Chapter in an edited book (Author) › peer-review

6 Citations (Scopus)

Abstract

This chapter compares three regime-switching models in estimating and forecasting behavioural heterogeneity in the AUD/USD foreign exchange market. The three heterogeneous agent models allow different elements to be regime-dependent following different mechanisms. The first model pioneered by Boswijk et al. (2007) models the fraction of each type of agents as a function of its relative past performance. The second model developed by Lof (2012) allows agents to switch their strategies based on macroeconomic fundamentals. The third model proposed by Chiarella et al. (2012) sets agents beliefs to be dependent on a Markov-switching process. Our empirical results show that (i) the model by Lof (2012) provides the best in-sample estimation efficiency and (ii) the model by Boswijk et al. (2007) significantly outperforms the model by Lof (2012) in terms of out-of-sample forecasting accuracy, but not that by Chiarella et al. (2012) in the medium to long run. © 2014 Springer International Publishing Switzerland. All rights are reserved.

Original language	English
Title of host publication	Nonlinear Economic Dynamics and Financial Modelling: Essays in Honour of Carl Chiarella
Publisher	Springer International Publishing
Pages	201-223
ISBN (Print)	9783319074702, 3319074695, 9783319074696
DOIs	https://doi.org/10.1007/978-3-319-07470-2_12
Publication status	Published - 1 May 2014
Externally published	Yes

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Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

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Regime switching models in the foreign exchange market. / Chia, Wai-Mun; Li, Mengling; Zheng, Huanhuan.
Nonlinear Economic Dynamics and Financial Modelling: Essays in Honour of Carl Chiarella. Springer International Publishing , 2014. p. 201-223.

Research output: Chapters, Conference Papers, Creative and Literary Works › RGC 12 - Chapter in an edited book (Author) › peer-review

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Regime switching models in the foreign exchange market

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