IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v608y2022ip2s037843712200869x.html
   My bibliography  Save this article

The evolution of foreign exchange market: A network view

Author

Listed:
  • Zhang, Ditian
  • Zhuang, Yangyang
  • Tang, Pan
  • Han, Qingying

Abstract

By analyzing the foreign exchange market data of various currencies, we investigate the topology of correlation networks among 45 major currencies using the minimal spanning tree (MST) and the planar maximally filtered graph (PMFG). Besides the geographical location, our paper uses interest rates as another labeling criterion to analyze the currency network. Some conclusions are given: the mean values of the correlation coefficients dropped dramatically in economic crisis, such as September 2008 and March 2020. Also, the overall correlation between currencies has gradually weakened in recent years; When interest rate is used as the labeling criteria, the currencies of countries with low interest rates are mostly surrounded by the EUR; The PMFG method contains more links that are filtered in the MST and displays different results on degree centrality analysis, providing complementary information for the MST result; the Commonwealth cluster is also found. Our findings can help to discover the economic cycles and market crashes by studying topological and statistical properties of the currency network.

Suggested Citation

  • Zhang, Ditian & Zhuang, Yangyang & Tang, Pan & Han, Qingying, 2022. "The evolution of foreign exchange market: A network view," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 608(P2).
    • Handle: RePEc:eee:phsmap:v:608:y:2022:i:p2:s037843712200869x
    DOI: 10.1016/j.physa.2022.128311
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S037843712200869X
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2022.128311?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. A. Sienkiewicz & T. Gubiec & R. Kutner & Z. R. Struzik, 2013. "Dynamic structural and topological phase transitions on the Warsaw Stock Exchange: A phenomenological approach," Papers 1301.6506, arXiv.org.
    2. M. Wili'nski & A. Sienkiewicz & T. Gubiec & R. Kutner & Z. R. Struzik, 2013. "Structural and topological phase transitions on the German Stock Exchange," Papers 1301.2530, arXiv.org, revised Jul 2013.
    3. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 11(1), pages 193-197, September.
    4. Stanislav S. Borysov & Yasser Roudi & Alexander V. Balatsky, 2015. "U.S. stock market interaction network as learned by the Boltzmann Machine," Papers 1504.02280, arXiv.org, revised Sep 2015.
    5. Wiliński, M. & Sienkiewicz, A. & Gubiec, T. & Kutner, R. & Struzik, Z.R., 2013. "Structural and topological phase transitions on the German Stock Exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(23), pages 5963-5973.
    6. Stanislav S. Borysov & Yasser Roudi & Alexander V. Balatsky, 2015. "U.S. stock market interaction network as learned by the Boltzmann machine," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 88(12), pages 1-14, December.
    7. Keskin, Mustafa & Deviren, Bayram & Kocakaplan, Yusuf, 2011. "Topology of the correlation networks among major currencies using hierarchical structure methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(4), pages 719-730.
    8. Wang, Gang-Jin & Xie, Chi, 2015. "Correlation structure and dynamics of international real estate securities markets: A network perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 176-193.
    9. Maliszewska,Maryla & Mattoo,Aaditya & Van Der Mensbrugghe,Dominique, 2020. "The Potential Impact of COVID-19 on GDP and Trade : A Preliminary Assessment," Policy Research Working Paper Series 9211, The World Bank.
    10. Cao, Guangxi & Zhang, Qi & Li, Qingchen, 2017. "Causal relationship between the global foreign exchange market based on complex networks and entropy theory," Chaos, Solitons & Fractals, Elsevier, vol. 99(C), pages 36-44.
    11. Giuseppe Buccheri & Stefano Marmi & Rosario N. Mantegna, 2013. "Evolution of correlation structure of industrial indices of US equity markets," Papers 1306.4769, arXiv.org.
    12. Gilmore, Claire G. & Lucey, Brian M. & Boscia, Marian W., 2010. "Comovements in government bond markets: A minimum spanning tree analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4875-4886.
    13. Zhang, Bo & Wang, Jun & Fang, Wen, 2015. "Volatility behavior of visibility graph EMD financial time series from Ising interacting system," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 432(C), pages 301-314.
    14. Jang, Wooseok & Lee, Junghoon & Chang, Woojin, 2011. "Currency crises and the evolution of foreign exchange market: Evidence from minimum spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(4), pages 707-718.
    15. Mizuno, Takayuki & Takayasu, Hideki & Takayasu, Misako, 2006. "Correlation networks among currencies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 364(C), pages 336-342.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bui Thanh Khoa & Tran Trong Huynh & Vo Dinh Nhat Truong & Le Vu Truong & Do Bui Xuan Cuong & Tran Khanh, 2023. "Minimal Spanning Tree application to determine market correlation structure," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ENGINEERING AND TECHNOLOGY, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 13(1), pages 64-71.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gautier Marti & Frank Nielsen & Miko{l}aj Bi'nkowski & Philippe Donnat, 2017. "A review of two decades of correlations, hierarchies, networks and clustering in financial markets," Papers 1703.00485, arXiv.org, revised Nov 2020.
    2. Ditian Zhang & Yangyang Zhuang & Pan Tang & Hongjuan Peng & Qingying Han, 2023. "Financial price dynamics and phase transitions in the stock markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 96(3), pages 1-21, March.
    3. Zhuang, Yangyang & Zhang, Ditian & Tang, Pan & Peng, Hongjuan, 2024. "Clustering effects and evolution of the global major 10-year government bond market structure: A network perspective," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    4. Jae Woo Lee & Ashadun Nobi, 2018. "State and Network Structures of Stock Markets around the Global Financial Crisis," Papers 1806.04363, arXiv.org.
    5. Kristoufek, Ladislav & Janda, Karel & Zilberman, David, 2012. "Correlations between biofuels and related commodities before and during the food crisis: A taxonomy perspective," Energy Economics, Elsevier, vol. 34(5), pages 1380-1391.
    6. Xin Yang & Shigang Wen & Zhifeng Liu & Cai Li & Chuangxia Huang, 2019. "Dynamic Properties of Foreign Exchange Complex Network," Mathematics, MDPI, vol. 7(9), pages 1-19, September.
    7. Dias, João, 2012. "Sovereign debt crisis in the European Union: A minimum spanning tree approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(5), pages 2046-2055.
    8. Jae Woo Lee & Ashadun Nobi, 2018. "State and Network Structures of Stock Markets Around the Global Financial Crisis," Computational Economics, Springer;Society for Computational Economics, vol. 51(2), pages 195-210, February.
    9. Wen, Danyan & Ma, Chaoqun & Wang, Gang-Jin & Wang, Senzhang, 2018. "Investigating the features of pairs trading strategy: A network perspective on the Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 903-918.
    10. Matesanz, David & Ortega, Guillermo J., 2015. "Sovereign public debt crisis in Europe. A network analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 436(C), pages 756-766.
    11. Gang-Jin Wang & Chi Xie & Shou Chen, 2017. "Multiscale correlation networks analysis of the US stock market: a wavelet analysis," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(3), pages 561-594, October.
    12. Marcin Wk{a}torek & Stanis{l}aw Dro.zd.z & Jaros{l}aw Kwapie'n & Ludovico Minati & Pawe{l} O'swik{e}cimka & Marek Stanuszek, 2020. "Multiscale characteristics of the emerging global cryptocurrency market," Papers 2010.15403, arXiv.org, revised Mar 2021.
    13. Deviren, Seyma Akkaya & Deviren, Bayram, 2016. "The relationship between carbon dioxide emission and economic growth: Hierarchical structure methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 429-439.
    14. Chun-Xiao Nie, 2021. "Studying the correlation structure based on market geometry," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(2), pages 411-441, April.
    15. Kristoufek, Ladislav & Janda, Karel & Zilberman, David, 2012. "Relationship Between Prices of Food, Fuel and Biofuel," 131st Seminar, September 18-19, 2012, Prague, Czech Republic 135793, European Association of Agricultural Economists.
    16. Peng Yue & Qing Cai & Wanfeng Yan & Wei-Xing Zhou, 2020. "Information flow networks of Chinese stock market sectors," Papers 2004.08759, arXiv.org.
    17. Lee, Junghoon & Youn, Janghyuk & Chang, Woojin, 2012. "Intraday volatility and network topological properties in the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1354-1360.
    18. Dias, João, 2013. "Spanning trees and the Eurozone crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(23), pages 5974-5984.
    19. Paulus, Michal & Kristoufek, Ladislav, 2015. "Worldwide clustering of the corruption perception," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 351-358.
    20. Zięba, Damian, 2024. "If GPU(time) == money: Sustainable crypto-asset market? Analysis of similarity among crypto-asset financial time series," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 863-912.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:608:y:2022:i:p2:s037843712200869x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.