Detecting a currency's dominance or dependence using foreign exchange network trees

Mark McDonald, Omer Suleman, Stacy Williams, Sam Howison, Neil F. Johnson

Research output: Contribution to journalArticlepeer-review

62 Scopus citations


In a system containing a large number of interacting stochastic processes, there will typically be many nonzero correlation coefficients. This makes it difficult to either visualize the system's interdependencies, or identify its dominant elements. Such a situation arises in foreign exchange (FX), which is the world's biggest market. Here we develop a network analysis of these correlations using minimum spanning trees (MSTs). We show that not only do the MSTs provide a meaningful representation of the global FX dynamics, but they also enable one to determine momentarily dominant and dependent currencies. We find that information about a country's geographical ties emerges from the raw exchange-rate data. Most importantly from a trading perspective, we discuss how to infer which currencies are "in play" during a particular period of time.

Original languageEnglish (US)
Article number046106
JournalPhysical Review E - Statistical, Nonlinear, and Soft Matter Physics
Issue number4
StatePublished - Oct 2005

ASJC Scopus subject areas

  • Statistical and Nonlinear Physics
  • Statistics and Probability
  • Condensed Matter Physics


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