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The evolution of foreign exchange market: A network view

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  • Zhang, Ditian
  • Zhuang, Yangyang
  • Tang, Pan
  • Han, Qingying

Abstract

By analyzing the foreign exchange market data of various currencies, we investigate the topology of correlation networks among 45 major currencies using the minimal spanning tree (MST) and the planar maximally filtered graph (PMFG). Besides the geographical location, our paper uses interest rates as another labeling criterion to analyze the currency network. Some conclusions are given: the mean values of the correlation coefficients dropped dramatically in economic crisis, such as September 2008 and March 2020. Also, the overall correlation between currencies has gradually weakened in recent years; When interest rate is used as the labeling criteria, the currencies of countries with low interest rates are mostly surrounded by the EUR; The PMFG method contains more links that are filtered in the MST and displays different results on degree centrality analysis, providing complementary information for the MST result; the Commonwealth cluster is also found. Our findings can help to discover the economic cycles and market crashes by studying topological and statistical properties of the currency network.

Suggested Citation

  • Zhang, Ditian & Zhuang, Yangyang & Tang, Pan & Han, Qingying, 2022. "The evolution of foreign exchange market: A network view," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 608(P2).
    • Handle: RePEc:eee:phsmap:v:608:y:2022:i:p2:s037843712200869x
    DOI: 10.1016/j.physa.2022.128311
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    1. Bui Thanh Khoa & Tran Trong Huynh & Vo Dinh Nhat Truong & Le Vu Truong & Do Bui Xuan Cuong & Tran Khanh, 2023. "Minimal Spanning Tree application to determine market correlation structure," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ENGINEERING AND TECHNOLOGY, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 13(1), pages 64-71.

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