Analysis of a network structure of the foreign currency exchange market
AbstractWe analyze structure of the world foreign currency exchange (FX) market viewed as a network of interacting currencies. We analyze daily time series of FX data for a set of 63 currencies, including gold, silver and platinum. We group together all the exchange rates with a common base currency and study each group separately. By applying the methods of filtered correlation matrix we identify clusters of closely related currencies. The clusters are formed typically according to the economical and geographical factors. We also study topology of weighted minimal spanning trees for different network representations (i.e., for different base currencies) and find that in a majority of representations the network has a hierarchical scale-free structure. In addition, we analyze the temporal evolution of the network and detect that its structure is not stable over time. A medium-term trend can be identified which affects the USD node by decreasing its centrality. Our analysis shows also an increasing role of euro in the world's currency market.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0906.0480.
Date of creation: Jun 2009
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Publication status: Published in J. Econ. Interact. Coord. 4, 55-72 (2009)
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-IFN-2009-09-26 (International Finance)
- NEP-MON-2009-09-26 (Monetary Economics)
- NEP-NET-2009-09-26 (Network Economics)
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