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Scaling in currency exchange

Author

Listed:
  • Galluccio, S.
  • Caldarelli, G.
  • Marsili, M.
  • Zhang, Y.-C.

Abstract

We study the scaling behavior in currency exchange rates. Our results suggest that they satisfy scaling with an exponent close to 0.5, but that it differs qualitatively from that of a simple random walk. Indeed price variations cannot be considered as independent variables and subtle correlations are present. Furthermore, we introduce a novel statistical analysis for economic data which makes the physical properties of a signal more evident and eliminates the systematic effects of time periodicity.

Suggested Citation

  • Galluccio, S. & Caldarelli, G. & Marsili, M. & Zhang, Y.-C., 1997. "Scaling in currency exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 423-436.
  • Handle: RePEc:eee:phsmap:v:245:y:1997:i:3:p:423-436
    DOI: 10.1016/S0378-4371(97)00316-6
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    Citations

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    Cited by:

    1. Nicolò Pecora & Alessandro Spelta, 2014. "Shareholding Network in the Euro Area Banking Market," DISCE - Working Papers del Dipartimento di Economia e Finanza def014, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Darbellay, Georges A & Wuertz, Diethelm, 2000. "The entropy as a tool for analysing statistical dependences in financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 429-439.
    3. Seemann, Lars & McCauley, Joseph L. & Gunaratne, Gemunu H., 2011. "Intraday volatility and scaling in high frequency foreign exchange markets," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 121-126, June.
    4. Segnon, Mawuli & Lux, Thomas, 2013. "Multifractal models in finance: Their origin, properties, and applications," Kiel Working Papers 1860, Kiel Institute for the World Economy (IfW).
    5. Dai Pra, P. & Pigato, P., 2015. "Multi-scaling of moments in stochastic volatility models," Stochastic Processes and their Applications, Elsevier, vol. 125(10), pages 3725-3747.
    6. Pecora, Nicolò & Spelta, Alessandro, 2015. "Shareholding relationships in the Euro Area banking market: A network perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 434(C), pages 1-12.
    7. Nunes Amaral, Luís A & Buldyrev, Sergey V & Havlin, Shlomo & Maass, Philipp & Salinger, Michael A & Eugene Stanley, H & Stanley, Michael H.R, 1997. "Scaling behavior in economics: The problem of quantifying company growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 244(1), pages 1-24.
    8. repec:agr:journl:v:3(612):y:2017:i:3(612):p:71-82 is not listed on IDEAS
    9. Hua, Jia-Chen & Chen, Lijian & Falcon, Liberty & McCauley, Joseph L. & Gunaratne, Gemunu H., 2015. "Variable diffusion in stock market fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 221-233.
    10. Liehr, Stefan & Pawelzik, Klaus, 2000. "A trading strategy with variable investment from minimizing risk to profit ratio," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 524-538.
    11. Matassini, Lorenzo & Franci, Fabio, 2001. "On financial markets trading," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 289(3), pages 526-542.
    12. Seemann, Lars & Hua, Jia-Chen & McCauley, Joseph L. & Gunaratne, Gemunu H., 2012. "Ensemble vs. time averages in financial time series analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(23), pages 6024-6032.
    13. Lin, Xiaoqiang & Tang, Zhenpeng & Fei, Fangyu, 2013. "Testing for relationships between Shanghai and Shenzhen stock markets: A threshold cointegration perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(18), pages 4064-4074.
    14. Mercik, Szymon & Weron, Rafal, 2002. "Origins of scaling in FX markets," MPRA Paper 2294, University Library of Munich, Germany.
    15. Nicol'o Musmeci & Stefano Battiston & Guido Caldarelli & Michelangelo Puliga & Andrea Gabrielli, 2012. "Bootstrapping topology and systemic risk of complex network using the fitness model," Papers 1209.6459, arXiv.org.
    16. Baviera, Roberto & Vergni, Davide & Vulpiani, Angelo, 2000. "Markovian approximation in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 280(3), pages 566-581.
    17. Bassler, Kevin E. & McCauley, Joseph L. & Gunaratne, Gemunu H., 2006. "Nonstationary increments, scaling distributions, and variable diffusion processes in financial markets," MPRA Paper 2126, University Library of Munich, Germany.
    18. Kang, Sang Hoon & Yoon, Seong-Min, 2007. "Long memory properties in return and volatility: Evidence from the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(2), pages 591-600.
    19. Turiel, Antonio & Pérez-Vicente, Conrad J., 2003. "Multifractal geometry in stock market time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 322(C), pages 629-649.
    20. Anton Golub & Gregor Chliamovitch & Alexandre Dupuis & Bastien Chopard, 2014. "Multi-scale Representation of High Frequency Market Liquidity," Papers 1402.2198, arXiv.org.
    21. Turiel, Antonio & Pérez-Vicente, Conrad J., 2005. "Role of multifractal sources in the analysis of stock market time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(2), pages 475-496.

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