What shakes the FX tree? Understanding currency dominance, dependence and dynamics

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

Research output: Contribution to journalConference article

1 Scopus citations

Abstract

There is intense interest in understanding the stochastic and dynamical properties of the global Foreign Exchange (FX) market, whose daily transactions exceed 1012 US dollars. This is a formidable task since the FX market is characterized by a web of fluctuating exchange rates, with subtle inter-dependencies which may change in time. In practice, traders talk of particular currencies being 'in play' during a particular period of time - yet there is no established machinery for detecting such important information. Here we apply the construction of Minimum Spanning Trees (MSTs) to the FX market, and show that the MST can capture important features of the global FX dynamics. Moreover, we show that the MST can help identify momentarily dominant and dependent currencies.

Original languageEnglish (US)
Article number15
Pages (from-to)86-99
Number of pages14
JournalProceedings of SPIE - The International Society for Optical Engineering
Volume5848
DOIs
StatePublished - Dec 12 2005
EventNoise and Fluctuations in Econophysics and Finance - Austin, TX, United States
Duration: May 24 2005May 26 2005

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Keywords

  • Correlations
  • Econophysics
  • Fluctuations
  • Graphs
  • Networks

ASJC Scopus subject areas

  • Electronic, Optical and Magnetic Materials
  • Condensed Matter Physics
  • Computer Science Applications
  • Applied Mathematics
  • Electrical and Electronic Engineering

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