A Bayesian Dirichlet autoregressive conditional heteroskedasticity model for forecasting currency shares

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Authors: Harrison Katz, Robert E. Weiss
Cited by: 2
References: 17

Abstract

In marketplace finance, the daily mix of billing currencies is compositional data that drive forecasting, reporting, and treasury risk. We study Airbnb’s currency-fee shares across four regions and present a Bayesian Dirichlet ARMA model with a time-varying precision component. The model keeps predictions on the simplex, captures mean dynamics on the additive log-ratio scale, and lets volatility spike during disruptions and settle as conditions normalize. We evaluate against standard Dirichlet and transformed-Gaussian alternatives using simulations with misreported observations and temporary regime shifts, and then validate on held-out data. Across all settings, our approach delivers more accurate forecasts, better-calibrated intervals, and weaker residual persistence. Modeling precision as a dynamic process provides a practical, interpretable way to forecast proportions and quantify uncertainty when the noise itself moves.

Fields of Study & Subjects

Stock Market Forecasting Methods Complex Systems and Time Series Analysis Forecasting Techniques and Applications

Publication details

Journal / source
International Journal of Forecasting
Publisher
Elsevier BV
Volume
42
Issue
3
Pages
1033–1046
Publication date
12 March 2026
Language
EN