A distance-based fuzzy time series model for exchange rates forecasting

  • Authors:

  • Yungho Leu;Chien-Pang Lee;Yie-Zu Jou

  • Affiliations:

  • Department of Information Management, National Taiwan University of Science and Technology, 43, Keelung Road, Section 4, Taipei 10607, Taiwan, ROC;Department of Information Management, National Taiwan University of Science and Technology, 43, Keelung Road, Section 4, Taipei 10607, Taiwan, ROC;Department of Information Management, National Taiwan University of Science and Technology, 43, Keelung Road, Section 4, Taipei 10607, Taiwan, ROC

  • Venue:
  • Expert Systems with Applications: An International Journal
  • Year:
  • 2009

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Abstract

Fuzzy time series model has been successfully employed in predicting stock prices and foreign exchange rates. In this paper, we propose a new fuzzy time series model termed as distance-based fuzzy time series (DBFTS) to predict the exchange rate. Unlike the existing fuzzy time series models which require exact match of the fuzzy logic relationships (FLRs), the distance-based fuzzy time series model uses the distance between two FLRs in selecting prediction rules. To predict the exchange rate, a two factors distance-based fuzzy time series model is constructed. The first factor of the model is the exchange rate itself and the second factor comprises many candidate variables affecting the fluctuation of exchange rates. Using the exchange rate data released by the Central Bank of Taiwan, we conducted several experiments on exchange rate forecasting. The experiment results showed that the distance-based fuzzy time series outperformed the random walk model and the artificial neural network model in terms of mean square error.