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Entropy 2013, 15(5), 1643-1662; doi:10.3390/e15051643

Statistical Properties of the Foreign Exchange Network at Different Time Scales: Evidence from Detrended Cross-Correlation Coefficient and Minimum Spanning Tree

1
College of Business Administration, Hunan University, Changsha 410082, China
2
Center of Finance and Investment Management, Hunan University, Changsha 410082, China
*
Author to whom correspondence should be addressed.
Received: 15 April 2013 / Revised: 24 April 2013 / Accepted: 26 April 2013 / Published: 6 May 2013
(This article belongs to the collection Advances in Applied Statistical Mechanics)
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Abstract

We investigate the statistical properties of the foreign exchange (FX) network at different time scales by two approaches, namely the methods of detrended cross-correlation coefficient (DCCA coefficient) and minimum spanning tree (MST). The daily FX rates of 44 major currencies in the period of 2007–2012 are chosen as the empirical data. Based on the analysis of statistical properties of cross-correlation coefficients, we find that the cross-correlation coefficients of the FX market are fat-tailed. By examining three MSTs at three special time scales (i.e., the minimum, medium, and maximum scales), we come to some conclusions: USD and EUR are confirmed as the predominant world currencies; the Middle East cluster is very stable while the Asian cluster and the Latin America cluster are not stable in the MSTs; the Commonwealth cluster is also found in the MSTs. By studying four evaluation criteria, we find that the MSTs of the FX market present diverse topological and statistical properties at different time scales. The scale-free behavior is observed in the FX network at most of time scales. We also find that most of links in the FX network survive from one time scale to the next.
Keywords: econophysics; networks; detrended cross-correlation coefficient; minimumspanning tree; foreign exchange market econophysics; networks; detrended cross-correlation coefficient; minimumspanning tree; foreign exchange market
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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MDPI and ACS Style

Wang, G.-J.; Xie, C.; Chen, Y.-J.; Chen, S. Statistical Properties of the Foreign Exchange Network at Different Time Scales: Evidence from Detrended Cross-Correlation Coefficient and Minimum Spanning Tree. Entropy 2013, 15, 1643-1662.

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