This paper applies the variable forgetting factor and the fixed forgetting factor to financial time-series analysis, and establishes the linkage for the first time between the variable forgetting factor approach and kernel smoothing. We then demonstrate the use of the proposed variable forgetting factor approach to undertake forecasting of the Euro's exchange rates and the CRSP monthly net asset values (NAV). For both applications, the findings show that the kernel bandwidth so determined can improve the forecasting performance.
Brailsford, T., Penm, J. and Terrell, R. (2006), "Kernel Bandwidth Applications to the Euro and the U.S. Mutual Fund Movements", Chen, A. (Ed.) Research in Finance (Research in Finance, Vol. 23), Emerald Group Publishing Limited, Bingley, pp. 81-97. https://doi.org/10.1016/S0196-3821(06)23003-XDownload as .RIS
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