Currency crises and the evolution of foreign exchange market: Evidence from minimum spanning tree

We examined the time series properties of the foreign exchange market for 1990–2008 in relation to the history of the currency crises using the minimum spanning tree (MST) approach and made several meaningful observations about the MST of currencies. First, around currency crises, the mean correlati...

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Bibliographic Details
Published inPhysica A Vol. 390; no. 4; pp. 707 - 718
Main Authors Jang, Wooseok, Lee, Junghoon, Chang, Woojin
Format Journal Article
LanguageEnglish
Published Elsevier B.V 15.02.2011
Subjects
Asian
Clusters
Correlation coefficients
Currencies
Currency crisis
Evolution
Foreign exchange rate
Markets
Minimum spanning tree
Statistical mechanics
Time series
Trees
Currency crisis
Foreign exchange rate
Minimum spanning tree
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Summary:We examined the time series properties of the foreign exchange market for 1990–2008 in relation to the history of the currency crises using the minimum spanning tree (MST) approach and made several meaningful observations about the MST of currencies. First, around currency crises, the mean correlation coefficient between currencies decreased whereas the normalized tree length increased. The mean correlation coefficient dropped dramatically passing through the Asian crisis and remained at the lowered level after that. Second, the Euro and the US dollar showed a strong negative correlation after 1997, implying that the prices of the two currencies moved in opposite directions. Third, we observed that Asian countries and Latin American countries moved away from the cluster center (USA) passing through the Asian crisis and Argentine crisis, respectively.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0378-4371
1873-2119
DOI:10.1016/j.physa.2010.10.028