Interdependence of foreign exchange markets: A wavelet coherence analysis

Lu Yang, Xiao Jing Cai, Huimin Zhang, Shigeyuki Hamori

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

Based on the wavelet decomposition approach, we study co-movement among foreign exchange markets using the returns of exchange rates (GBP/USD, EUR/USD, and JPY/USD). We focus on the interdependence among returns of exchange rates during the recent global financial crisis and European debt crisis. We use a wavelet analysis because of its ability to decompose signals into high and low frequencies. This approach allows us to study shorter time periods independently of longer time periods. The results reveal strong interdependence between the euro and pound sterling at all frequency bands of scale over the sample period. With regard to the yen-pound pairwise, covariation is localized at high scales. Further, we find that interdependence is more pronounced during crises.

Original languageEnglish
Pages (from-to)6-14
Number of pages9
JournalEconomic Modelling
Volume55
DOIs
Publication statusPublished - Jun 1 2016
Externally publishedYes

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Keywords

  • Asset price transmission channel
  • Financial contagion
  • Foreign exchange market
  • Interdependence
  • Wavelet coherence

ASJC Scopus subject areas

  • Economics and Econometrics

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