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Discrete Dynamics in Nature and Society
Volume 2014, Article ID 170921, 11 pages
Research Article

Dynamics of Foreign Exchange Networks: A Time-Varying Copula Approach

1College of Business Administration, Hunan University, Changsha 410082, China
2Center of Finance and Investment Management, Hunan University, Changsha 410082, China
3China Merchants Bank, Shenzhen 518067, China

Received 11 March 2014; Accepted 16 April 2014; Published 6 May 2014

Academic Editor: Fenghua Wen

Copyright © 2014 Gang-Jin Wang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Based on a time-varying copula approach and the minimum spanning tree (MST) method, we propose a time-varying correlation network-based approach to investigate dynamics of foreign exchange (FX) networks. In piratical terms, we choose the daily FX rates of 42 major currencies in the international FX market during the period of 2005–2012 as the empirical data. The empirical results show that (i) the distributions of cross-correlation coefficients (distances) in the international FX market (network) are fat-tailed and negatively skewed; (ii) financial crises during the analyzed period have a great effect on the FX network’s topology structure and lead to the US dollar becoming more centered in the MST; (iii) the topological measures of the FX network show a large fluctuation and display long-range correlations; (iv) the FX network has a long-term memory effect and presents a scale-free behavior in the most of time; and (v) a great majority of links between currencies in the international FX market survive from one time to the next, and multistep survive rates of FX networks drop sharply as the time increases.