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Lead-lag relationships in foreign exchange markets

 
: Basnarkov, L.; Stojkoski, V.; Utkovski, Z.; Kocarev, L.

:

Physica. A 539 (2020), Art. 122986
ISSN: 0378-4371
English
Journal Article
Fraunhofer HHI ()

Abstract
Lead–lag relationships among assets represent a useful tool for analyzing high frequency financial data. However, research on these relationships predominantly focuses on correlation analyses for the dynamics of stock prices, spots and futures on market indexes, whereas foreign exchange data have been less explored. To provide a valuable insight on the nature of the lead–lag relationships in foreign exchange markets here we perform a detailed study for the one-minute log returns on exchange rates through three different approaches: (i) lagged correlations, (ii) lagged partial correlations and (iii) Granger causality. In all studies, we find that even though for most pairs of exchange rates lagged effects are absent, there are many pairs which pass statistical significance tests. Out of the statistically significant relationships, we construct directed networks and investigate the influence of individual exchange rates through the PageRank algorithm. The algorithm, in general, ranks stock market indexes quoted in their respective currencies, as most influential. In contrast to the claims of the efficient market hypothesis, these findings suggest that all market information does not spread instantaneously.

: http://publica.fraunhofer.de/documents/N-582429.html