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

Wooseok Jang, Junghoon Lee and Woojin Chang

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 4, 707-718

Abstract: 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.

Keywords: Foreign exchange rate; Currency crisis; Minimum spanning tree (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (50)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:390:y:2011:i:4:p:707-718

DOI: 10.1016/j.physa.2010.10.028

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