Economic and political effects on currency clustering
Files
Accepted manuscript
Date
2019
Authors
Kremer, Marcel
Becker, Alexander P.
Vodenska, Irena
Stanley, Eugene
Schafer, Rudy
Version
Accepted manuscript
OA Version
Citation
Kremer, M., Becker, A. P., Vodenska, I., Stanley, H. E., & Schäfer, R. (2019). Economic and political effects on currency clustering dynamics. Quantitative Finance, 19(5), 705-716. https://doi.org/10.1080/14697688.2018.1532101
Abstract
We propose a new measure named the symbolic performance to better understand the structure of foreign exchange markets. Instead of considering currency pairs, we isolate a quantity that describes each currency’s position in the market, independent of a base currency. We apply the k-means++ clustering algorithm to analyze how the roles of currencies change over time, from reference status or minimal apprecia- tions and depreciations with respect to other currencies to large appreciations and depreciations. We show how different central bank interventions and economic and political developments, such as the cap on the Swiss franc to the euro enforced by the Swiss National Bank or the Brexit vote, affect the position of a currency in the global foreign exchange market.
Description
This is an Accepted Manuscript of an article published by Taylor & Francis in Quantitative Finance vol. 19, no. 5, available online: https://www.tandfonline.com/doi/abs/10.1080/14697688.2018.1532101.