Forecasting the Turkish lira Exchange Rates Through Univariate Techniques: Can the Simple Models Outperform the Sophisticated Ones?
https://doi.org/10.26794/2587-5671-2024-28-2-239-252
Abstract
The Central Bank of Turkey’s policy to decrease the nominal interest rate has caused episodes of severe fluctuations in Turkish lira exchange rates during 2022. According to these conditions, the daily return of the USD/TRY have attracted the risk-taker investors’ attention. Therefore, the uncertainty about the rates has pushed algorithmic traders toward finding the best forecasting model. While there is a growing tendency to employ sophisticated models to forecast financial time series, in most cases, simple models can provide more precise forecasts. To examine that claim, present study has utilized several models to predict daily exchange rates for a short horizon. Interestingly, the simple exponential smoothing model outperformed all other alternatives. Besides, in contrast to the initial inferences, the time series neither had structural break nor exhibited signs of the ARCH and leverage effects. Despite that behavior, there was undeniable evidence of a long-memory trend. That means the series tends to keep a movement, at least for a short period. Finally, the study concluded the simple models provide better forecasts for exchange rates than the complicated approaches.
About the Authors
M. R. Sarkandiz
Middle East Technical University
Turkey
Competing Interests:
Turkey
Mostafa R. Sarkandiz — Postgraduate Student, Graduate School of Applied Mathematics, Middle East Technical University.
Ankara
Competing Interests:
The authors have no conflicts of interest to declare.
S. Ghayekhloo
University of Calabria
Italy
Competing Interests:
Italy
Sara Ghayekhloo — Postgraduate Student, Department of Mathematics and Computer Science, University of Calabria.
Rende
Competing Interests:
The authors have no conflicts of interest to declare.
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For citations:
Sarkandiz M.R., Ghayekhloo S. Forecasting the Turkish lira Exchange Rates Through Univariate Techniques: Can the Simple Models Outperform the Sophisticated Ones? Finance: Theory and Practice. 2024;28(2):239-252. https://doi.org/10.26794/2587-5671-2024-28-2-239-252
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