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Decision Support Systems 42 (2006) 1054–1062 /locate/dsw A hybrid model for exchange rate prediction Huseyin Ince a, Theodore B. Trafalis b,* a School of Business Administration, Gebze Institute of Technology, CayV rova Fab. Yolu No:101 P.K:141 41400, Gebze, Kocaeli, Turkey b School of Industrial Engineering, University of Oklahoma, 202 West Boyd, Room 124, Norman, OK 73019, United States Received 21 July 2004; received in revised form 30 August 2005; accepted 11 September 2005 Available online 20 October 2005 Abstract Exchange rate forecasting is an important problem. Several forecasting techniques have been proposed in order to gain some advantages. Most of them are either as good as random walk forecasting models or slightly worse. Some researchers argued that this shows the efficiency of the exchange market. We propose a two stage forecasting model which incorporates parametric techniques such as autoregressive integrated moving average (ARIMA), vector autoregressive (VAR) and co-integration techni- ques, and nonparametric techniques such as support vector regression (SVR) and artificial neural networks (ANN). Comparison of these models showed that input selection is very important. Furthermore, our findings show that the SVR technique outperforms the ANN for two input selection methods. D 2005 Elsevier B.V. All rights reserved. Keywords: Exchange rate prediction; Neural networks; Support vector regression; Time series 1. Introduction correlation and nonlinearity in time series. They are in