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Enhancement of Neural Networks Model’s Predictions of Currencies Exchange Rates by Phase Space Reconstruction and Harris Hawks’ Optimization

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Abstract

Predictions of variations in exchange rates of other currencies to a vehicle currency such as the Dollar (USD) are vital in order to reduce the risks for international transactions. In this study, we use a heuristic algorithm of Harris Hawks’ optimization (HHO) along with phase space reconstructions (PSRs) coupled to the ANN (PSR-ANNHHO) to predict the daily data of GBP/USD and CAD/USD exchange rates. In this new hybrid model, unlike the previous ones, the input of the model is based on the two parameters of time delay and the embedding dimension. The HHO algorithm increases the performance of ANN, which has can model non-linear systems in a natural manner. The performance of the PSR-ANNHHO model can be compared with the ANN and the ANN hybridized with metaheuristic Algorithm of Innovative Gunner (AIG) model (ANN-AIG). The Modified Diebold–Mariano test indicates the statistical difference between the accuracy of the models. Based on the statistical measures and graphs, the PSR-ANNHHO model predicts exchange rates considerably better than stand-alone ANN and ANN-AIG model in each case. Hence, implementing PSR along with using the heuristic algorithms could increase the accuracy of the model. This model’s precise performance supports the case for it to be employed to predict future exchange rate variations, in order to decrease transactions risks in the global markets.

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The data set analyzed during this study are available in:" https://www.investing.com/currencies/usd-try-historical-data".

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Authors and Affiliations

  1. Josef Korbel School of International Studies, University of Denver, Denver, USA

    Haider A. Khan

  2. Department of Production Management, Faculty of Management, Sakarya University, Serdivan, Turkey

    Shahryar Ghorbani

  3. Department of Agriculture Economics, Faculty of Agriculture, University of Tabriz, Tabriz, Iran

    Elham Shabani

  4. Department of Computer Science and Information Engineering, Future Technology Research Center, National Yunlin University of Science and Technology, Douliu, Taiwan

    Shahab S. Band

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  1. Haider A. Khan
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Khan, H.A., Ghorbani, S., Shabani, E. et al. Enhancement of Neural Networks Model’s Predictions of Currencies Exchange Rates by Phase Space Reconstruction and Harris Hawks’ Optimization. Comput Econ 63, 835–860 (2024). https://doi.org/10.1007/s10614-023-10361-y

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