Time-scale dependence of correlations among foreign currencies

2003/03/17 by Mizuno, Takayuki, Kurihara, Shoko, Takayasu, Misako +1
#FOS: Economics and business #FOS: Physical sciences #Statistical Finance (q-fin.ST) #Statistical Mechanics (cond-mat.stat-mech)

paper · doi:10.48550/arxiv.cond-mat/0303306

Abstract

For the purpose of elucidating the correlation among currencies, we analyze daily and high-resolution data of foreign exchange rates. There is strong correlation for pairs of currencies of geographically near countries. We show that there is a time delay of order less than a minute between two currency markets having a strong cross-correlation. The cross-correlation between exchange rates is lower in shorter time scale in any case. As a corollary we notice a kind of contradiction that the direct Yen-Dollar rate significantly differs from the indirect Yen-Dollar rate through Euro in short time scales. This result shows the existence of arbitrage opportunity among currency exchange markets.

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