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Proceedings Paper

What shakes the FX tree? Understanding currency dominance, dependence, and dynamics (Keynote Address)
Author(s): Neil F. Johnson; Mark McDonald; Omer Suleman; Stacy Williams; Sam Howison
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Paper Abstract

There is intense interest in understanding the stochastic and dynamical properties of the global Foreign Exchange (FX) market, whose daily transactions exceed one trillion 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.

Paper Details

Date Published: 23 May 2005
PDF: 14 pages
Proc. SPIE 5848, Noise and Fluctuations in Econophysics and Finance, (23 May 2005); doi: 10.1117/12.618875
Show Author Affiliations
Neil F. Johnson, Oxford Univ. (United Kingdom)
Mark McDonald, Oxford Univ. (United Kingdom)
Omer Suleman, Oxford Univ. (United Kingdom)
Stacy Williams, FX Research and Trading Group, HSBC Bank (United Kingdom)
Sam Howison, Oxford Univ. (United Kingdom)

Published in SPIE Proceedings Vol. 5848:
Noise and Fluctuations in Econophysics and Finance
Derek Abbott; Jean-Philippe Bouchaud; Xavier Gabaix; Joseph L. McCauley, Editor(s)

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