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Analysis of a network structure of the foreign currency exchange market

  • Jaroslaw Kwapien
  • Sylwia Gworek
  • Stanislaw Drozdz
  • Andrzej Gorski
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    We 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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    File URL: http://arxiv.org/pdf/0906.0480
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    Paper provided by arXiv.org in its series Papers with number 0906.0480.

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    Date of creation: Jun 2009
    Date of revision:
    Publication status: Published in J. Econ. Interact. Coord. 4, 55-72 (2009)
    Handle: RePEc:arx:papers:0906.0480
    Contact details of provider: Web page: http://arxiv.org/

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    1. A. Z. Gorski & S. Drozdz & J. Kwapien, 2008. "Scale free effects in world currency exchange network," Papers 0810.1215, arXiv.org.
    2. S. Drożdż & A. Z. Górski & J. Kwapień, 2007. "World currency exchange rate cross-correlations," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 58(4), pages 499-502, 08.
    3. Drożdż, S. & Forczek, M. & Kwapień, J. & Oświe¸cimka, P. & Rak, R., 2007. "Stock market return distributions: From past to present," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 59-64.
    4. A. Z. Górski & S. Drożdż & J. Kwapień, 2008. "Scale free effects in world currency exchange network," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 66(1), pages 91-96, November.
    5. S. Drozdz & J. Kwapien & F. Gruemmer & F. Ruf & J. Speth, 2002. "Are the contemporary financial fluctuations sooner converging to normal?," Papers cond-mat/0208240, arXiv.org, revised Jul 2003.
    6. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 11(1), pages 193-197, September.
    7. S. Drozdz & M. Forczek & J. Kwapien & P. Oswiecimka & R. Rak, 2007. "Stock market return distributions: from past to present," Papers 0704.0664, arXiv.org.
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