Correlation Patterns in Foreign Exchange Markets

Lasko Basnarkov, Viktor Stojkoski, Zoran Utkovski and Ljupco Kocarev

Papers from arXiv.org

Abstract: The value of an asset in a financial market is given in terms of another asset known as numeraire. The dynamics of the value is non-stationary and hence, to quantify the relationships between different assets, one requires convenient measures such as the means and covariances of the respective log returns. Here, we develop transformation equations for these means and covariances when one changes the numeraire. The results are verified by a thorough empirical analysis capturing the dynamics of numerous assets in a foreign exchange market. We show that the partial correlations between pairs of assets are invariant under the change of the numeraire. This observable quantifies the relationship between two assets, while the influence of the rest is removed. As such the partial correlations uncover intriguing observations which may not be easily noticed in the ordinary correlation analysis.

Date: 2019-02, Revised 2019-02
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://arxiv.org/pdf/1902.06483 Latest version (application/pdf)

Related works:
Journal Article: Correlation patterns in foreign exchange markets (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1902.06483

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().