COMPLEX SYSTEMS THEORY DEPARTMENT

INSTITUTE OF NUCLEAR PHYSICS, POLISH ACADEMY OF SCIENCES

Research on currency market

Currency market is the largest one of all the financial markets, with daily turnover of over 5 trillion US dollars. It is global and, unlike stock markets or commodity markets, completely decentralized. Probably, since everything that happens in the world's economy has to be refelcted in relations among the currencies, Forex is also characterized by the most complex dynamics.

The currency market, in full analogy to other markets, can be viewed as consisting of market actors (mainly institutional, but also individual) that make transactions, but can also be viewed as consisting of the currencies themselves or the cross-rates between their pairs. In the latter case, we consider multivariate signals, which may be studied by means of matrix or network methods. Structure of the market as well as its stability over time can be investigated along this way. Both high-frequency fluctuations and low-frequency trends are of interest in this context. Such approach is useful in assessing the relative impact of strong currencies like US dollar and euro on global market and identifying temporal changes of this impact.

Currency rates are related with each other in such a way that cycling through a set of currencies cannot be profitable without a risk (no-arbitrage condition). The best known constraint of this type is the triangle rule involving any three currencies. However, in real situations, the market efficiency is preserved only to a certain degree and this allows for the existence of small inefficiencies. It occurs that signals expressing such inefficiencies have particularly non-trivial dynamics, which we also investigate.

Our publications regarding Forex are collected here.