Finding changes in the foreign exchange market from the perspective of currency network

Bing Li and Zefang Liao

Physica A: Statistical Mechanics and its Applications, 2020, vol. 545, issue C

Abstract: This research examines the foreign exchange (FX) market from the perspective of currency network. We construct the network based on correlations between exchange rates of 37 currencies from 2006 to 2012. The minimum spanning tree (MST) is used to generate a simplified network and bootstrap technique is employed to test the reliability of links. The full correlation matrices are further analyzed to support and test the robustness of the results from the MSTs. Specifically, we compare the results in the pre-crisis period (2006–2007) and the post-crisis period (2011–2012) to show the impact of the 2008 global financial crisis on the FX market. We have the following findings: (a) the currency network is more scattered in the post-crisis period; (b) the connections between currencies tend to be more internal within the geographic region after the crisis; (c) the European currencies maintain strong connections and keep their clustering feature stable.

Keywords: Currency network; Foreign exchange market; Minimum spanning tree; E-I index (search for similar items in EconPapers)
JEL-codes: C82 F31 G15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:545:y:2020:i:c:s0378437119320783

DOI: 10.1016/j.physa.2019.123727

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