Sign and amplitude representation of the forex networks

TL;DR

This paper decomposes forex exchange rate returns into sign and amplitude components, constructs minimal spanning trees for currency groups, and analyzes their correlation structures to reveal core similarities and peripheral differences in forex dynamics.

Contribution

It introduces a novel approach of analyzing forex networks through sign and amplitude decomposition and network construction, highlighting peripheral differences in currency relationships.

Findings

Sign and amplitude series exhibit similar core network structures.

Peripheral differences suggest new perspectives on forex dynamics.

Network analysis reveals structural properties of currency relationships.

Abstract

We decompose the exchange rates returns of 41 currencies (incl. gold) into their sign and amplitude components. Then we group together all exchange rates with a common base currency, construct Minimal Spanning Trees for each group independently, and analyze properties of these trees. We show that both the sign and the amplitude time series have similar correlation properties as far as the core network structure is concerned. There exist however interesting peripheral differences that may open a new perspective to view the Forex dynamics.