Title: Cross-correlation analysis of international foreign exchange markets: An EEMD-based approach
Authors: Milan Csaba Badics - Corvinus University of Budapest (Hungary) [presenting]
Abstract: The aim is to investigate the synchronization and contagion of international foreign exchange market co-movements especially before, during, and after the recent subprime crisis, by researching the interconnections in time-frequency domain. We test changes in correlations for different time scales with ensemble empirical mode decomposition (EEMD), a modified method of EMD. With clustering the different frequencies IMFs, we grouped thoese into high-, medium-, and low-frequency components, representing the short-, medium-, and long term volatilities of the foreign exchange time series. Our results indicate that correlation between different foreign exchange markets tends to be stable in low volatility periods, but this changes dramatically during turbulent periods both at higher and lower frequencies. Therefore, all these findings should be considered for risk managers from an international portfolio diversification perspective.