Abstract
We explore the foreign exchange and stock market networks for 48 countries from 1999 to 2012 and propose a model, based on complex Hilbert principal component analysis, for extracting significant lead-lag relationships between these markets. The global set of countries, including large and small countries in Europe, the Americas, Asia, and the Middle East, is contrasted with the limited scopes of targets, e.g., G5, G7 or the emerging Asian countries, adopted by previous works. We construct a coupled synchronization network, perform community analysis, and identify formation of four distinct network communities that are relatively stable over time. In addition to investigating the entire period, we divide the time period into into mild crisis, (1999-2002), calm, (2003-2006) and (2007-2012) sub-periods and find that the severe crisis period behavior dominates the dynamics in the foreign exchange-equity synchronization network. We observe that in general the foreign exchange market has predictive power for the global stock market performances. In addition, the United States, German and Mexican markets have forecasting power for the performances of other global equity markets.
Highlights
Our daily lives are strongly affected by various complex systems such as communication, financial transactions, transportation, just to name a few
Data Availability Statement: A minimal data set underlying the findings of our study in the manuscript is available as Supporting Information
The seventh eigenmode is outside the Rotational Random Shuffling (RRS) range, we exclude this mode as insignificant as it is very close to the boundary
Summary
Our daily lives are strongly affected by various complex systems such as communication, financial transactions, transportation, just to name a few. The development of modern societies relies on the proper functioning and reliability of these underlying infrastructures. The real world does not function as a set of independent systems but rather of many interdependent systems that interact with each other. Our world is becoming more interconnected and any progress or development in one part of the world can be seamlessly exported to another. Complexity science has been utilized for analyses of interconnectedness in various systems concerning our global world, not the least of which is the international financial and economic complex system. Interdependent network studies [1, 2] have found that coupled networks are more vulnerable to shocks in the system than single isolated networks, and that damage
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
