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Structure and evolution of the foreign exchange networks

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  • Jaroslaw Kwapien
  • Sylwia Gworek
  • Stanislaw Drozdz
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    Abstract

    We investigate topology and temporal evolution of the foreign currency exchange market viewed from a weighted network perspective. Based on exchange rates for a set of 46 currencies (including precious metals), we construct different representations of the FX network depending on a choice of the base currency. Our results show that the network structure is not stable in time, but there are main clusters of currencies, which persist for a long period of time despite the fact that their size and content are variable. We find a long-term trend in the network's evolution which affects the USD and EUR nodes. In all the network representations, the USD node gradually loses its centrality, while, on contrary, the EUR node has become slightly more central than it used to be in its early years. Despite this directional trend, the overall evolution of the network is noisy.

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    File URL: http://arxiv.org/pdf/0901.4793
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 0901.4793.

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    Date of creation: Jan 2009
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    Publication status: Published in Acta Phys. Pol. B 40, 175-194 (2009)
    Handle: RePEc:arx:papers:0901.4793

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    Web page: http://arxiv.org/

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    Cited by:
    1. Wang, Gang-Jin & Xie, Chi & Han, Feng & Sun, Bo, 2012. "Similarity measure and topology evolution of foreign exchange markets using dynamic time warping method: Evidence from minimal spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(16), pages 4136-4146.
    2. Sandoval, Leonidas, 2012. "Pruning a minimum spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2678-2711.
    3. Leonidas Sandoval Junior, 2011. "A Map of the Brazilian Stock Market," Papers 1107.4146, arXiv.org, revised Mar 2013.
    4. Sandoval, Leonidas Junior, 2013. "To lag or not to lag? How to compare indices of stock markets that operate at different times," Insper Working Papers wpe_319, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    5. Leonidas Sandoval Junior, 2011. "Cluster formation and evolution in networks of financial market indices," Papers 1111.5069, arXiv.org.
    6. Sandoval, Leonidas, 2014. "To lag or not to lag? How to compare indices of stock markets that operate on different times," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 403(C), pages 227-243.
    7. Leonidas Sandoval Junior, 2011. "Pruning a Minimum Spanning Tree," Papers 1109.0642, arXiv.org.
    8. Sandoval, Leonidas & Franca, Italo De Paula, 2012. "Correlation of financial markets in times of crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(1), pages 187-208.

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