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Dynamics of Foreign Exchange Networks: A Time-Varying Copula Approach

Gang-Jin Wang, Chi Xie, Peng Zhang, Feng Han and Shou Chen

Discrete Dynamics in Nature and Society, 2014, vol. 2014, 1-11

Abstract:

Based on a time-varying copula approach and the minimum spanning tree (MST) method, we propose a time-varying correlation network-based approach to investigate dynamics of foreign exchange (FX) networks. In piratical terms, we choose the daily FX rates of 42 major currencies in the international FX market during the period of 2005–2012 as the empirical data. The empirical results show that (i) the distributions of cross-correlation coefficients (distances) in the international FX market (network) are fat-tailed and negatively skewed; (ii) financial crises during the analyzed period have a great effect on the FX network’s topology structure and lead to the US dollar becoming more centered in the MST; (iii) the topological measures of the FX network show a large fluctuation and display long-range correlations; (iv) the FX network has a long-term memory effect and presents a scale-free behavior in the most of time; and (v) a great majority of links between currencies in the international FX market survive from one time to the next, and multistep survive rates of FX networks drop sharply as the time increases.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:170921

DOI: 10.1155/2014/170921

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