Matesanz, David and Ortega, Guillermo J. (2008): Network analysis of exchange data: Interdependence drives crisis contagion.
Download (1MB) | Preview
In this paper we detect the linear and nonlinear co-movements presented on the real exchange rate in a group of 28 developed and developing countries that have suffered currency and financial crises during 15 years. We have used the matrix of Pearson correlation and Phase Synchronous (PS) coefficients and an appropriate metric distance between pairs of countries in order to construct a topology and hierarchies by using the Minimum Spanning Tree (MST). In addition, we have calculated the MST cost and global correlation coefficients to observe the co-movements dynamics along the time sample. By comparing Pearson and phase synchronous information we address a new methodology that can uncover meaningful information on the contagion economic issue and, more generally, in the debate around interdependence and/or contagion among financial time series. Our results suggest some evidence of contagion in the Asian currency crises but this crisis contagion is due to previous and stable interdependence.
|Item Type:||MPRA Paper|
|Original Title:||Network analysis of exchange data: Interdependence drives crisis contagion|
|Keywords:||econophysics, linear co-movements, phase synchronous co-movements, MST, interdependence and contagion|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General
C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data ; Data Access
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||David Matesanz|
|Date Deposited:||12. Mar 2008 18:55|
|Last Modified:||09. Mar 2015 21:58|
Arestis, P.; Caporale, G. M.; Cipollini, A. and Spagnolo, N. (2005) Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis, International Journal of Finance & Economics, 10 (4), 359-367. Beben, M. and Orlowski, A. (2001) Correlations in financial time series: established versus emerging Markets, European Physical Journal B, 20, 527-530.
Bia kowski, J. and Dobromi , S. (2005) Financial contagion, spillovers and causality in the Markov switching framework, Quantitative Finance, 5 (1), 123-131.
Bonanno, G, Lillo, F. and Mantegna, R. N. (2001a) Levels of complexity in Financial markets, Physica A, 299, 16–27.
Bonanno, G. Lillo, F. and Mantegna, R. N. (2001b) High frequency cross-correlation in a set of stocks, Quantitative Finance, 1, 96–104.
Brida, J. G. and Risso, W. A. (2007) Dynamics and Structure of the Main Italian Companies, International Journal of Modern Physics C 18 (11), 1783.
Candelon, B.; Hecq, A. and Verschoor, W. F. C. (2005) Measuring common cyclical features during financial turmoil: Evidence of interdependence not contagion, Journal of International Money and Finance, 24, 1317-1334.
Corsetti, G.; Pericoli, M. and Sbracia, M. (2005) Some contagion, some interdependence’: More pitfalls in tests of financial contagion, Journal of International Money and Finance, 24, 1177-1199.
Darbellay, G. A. and Wuertz, D. (2000) The entropy as a tool for analysing statistical dependences in financial time series, Physica A 287, 429-439.
Dungey, M., Fry, R. and Martin, V. L. (2006) Correlation, contagion, and Asian evidence, Asian Economic Papers, 5(2), 32-72.
Dungey, M. Fry, R. Martín, V. and González-Hermosillo, B. (2005) Empirical Modeling of Contagion: A Review of Methodologies, Quantitative Finance, 5(1), 9-24.
Forbes, K.J., Rigobon, R. (2002) No contagion, only interdependence: measuring stock market co-movements, Journal of Finance, 57 (5), 2223-2261.
García Domínguez, L. et al. (2005) Enhanced synchrony in epileptiform activity? Local versus distant phase synchronization in generalized seizures, Journal of neuroscience, 25(35), 8077-84.
Gower, J. C. (1966) Some distance properties of latent root and vector methods used in multivariate analysis, Biometrika, 53, 325-338.
Gravelle, T.; Kichian, M. and Morley, J. (2006) Detecting shift-contagion in currency and bond markets, Journal of International Economics, 68, 409– 423.
Kaminsky, G., Lizondo, S. and Reinhart, C. M. (1998) Leading Indicators of Currency Crises, IMF Staff Papers, 45, 1-56.
Hatemi-J, A., Hacker, R.S. (2005) An alternative method to test for contagion with an application to the Asian financial crisis, Applied Financial Economics Letters, 1, 343-347.
King, M. and Wadhwani, S. (1990) Transmission of volatility between stock markets, Review of Financial Studies, 3(1), 5-33.
Mantegna, R. N. (1999) Hierarchical structure in financial markets, The European Physical Journal B, 11, 193-197.
Mantegna, R.N. and Stanley, H.E. (2000) An introduction to econophysics: Correlations and complexity in finance, University Press, Cambridge.
Marschinski, R. and Kantz, H. (2002) Analysing the information flow between financial time series. An improved estimator for transfer entropy, European Physical Journal B, 30, 275–281.
Matesanz, D. and Ortega, G. J. (2008) A (econophysics) note on volatility in exchange rate time series. Entropy as a ranking criterion, forthcoming, International Journal of Modern Physics C.
Mizuno, T., Takayasu, H. and Takayasu, M. (2006) Correlation networks among currencies, Physica A, 364, 336-342.
Mormann, F.; Lehnertz, K. D.; P. and Elger, C. E. (2000) Mean phase coherence as a measure for phase synchronization and its application to the EEG of epilepsy patients Physica D, 144, 358-369. Naylor, M. J.; Rose, L. C. and Moyle, B. J. (2007) Topology of Foreign Exchange Markets using Hierarchical Structure Methods, Physica A, 382, 199-208.
Ortega, G. J. and Matesanz, D. 2006, Cross-country hierarchical structure and currency crises, International Journal of Modern Physics C, 17 (3), 333-341.
Pérez, J. (2005) Empirical identification of currency crises: differences and similarities between indicators, Applied Financial Economics Letters, 1 (1), 41-46.
Pikovsky, A. S.; Rosenblum, M. G.; Osipov, G. V. and Kurths, J. (1997) Phase synchronization of chaotic oscillators by external driving, Physica D, 79, 219.
Plerou, V. et al. (1999) Universal and Nonuniversal Properties of Cross Correlations in Financial Time Series, Physical Review Letters, 83, 1471-1474.
Rammal, R.; Toulouse, G. and Virasoro, M. A. (1986) Ultrametricity for physicists Review of Modern Physics 58 (3), 765 - 788.
Rigobon, R. (2001) Contagion: How to measure it. In: Edwards, S., Frankel, J. (Eds.), Preventing Currency Crises in Emerging Markets, University of Chicago Press, Chicago.
Rigobon, R. (2003) On the measurement of international propagation of shocks: is the transmission stable? Journal of International Economics, 61, 261-283.
Rosenblum, M. G. et al. (2001) Phase synchronization: from theory to data analysis. In F. Moss and S. Gielen, (eds), Handbook of biological physics, Elsevier Science, Amsterdam.
Rosenblum, M. G.; Pikovsky, A.S. and Kurths, J. (1996) Phase Synchronization of Chaotic Oscillators, Physical Review Letters, 76, 1804-1807.