Time-scale dependence of correlations among foreign currencies

Takayuki Mizuno, Shoko Kurihara, Misako Takayasu and Hideki Takayasu

Papers from arXiv.org

Abstract: For the purpose of elucidating the correlation among currencies, we analyze daily and high-resolution data of foreign exchange rates. There is strong correlation for pairs of currencies of geographically near countries. We show that there is a time delay of order less than a minute between two currency markets having a strong cross-correlation. The cross-correlation between exchange rates is lower in shorter time scale in any case. As a corollary we notice a kind of contradiction that the direct Yen-Dollar rate significantly differs from the indirect Yen-Dollar rate through Euro in short time scales. This result shows the existence of arbitrage opportunity among currency exchange markets.

Date: 2003-03
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