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I came across a paper, not sure it originated from academia or a blog or such, that reported on applying principal components to build currency baskets from a set of individual currency pairs and to identify driving currencies. When I use the term basket then I mean a collection of individual cash fx pairs and to relate them linearly or non-linearly through different aggregator functions and weights. I am not talking about basket options here.

Has anyone come across such literature/paper/treatise/blog? I have spent a considerable amount of time in this area and only skimmed through that particular article, thought I had it bookmarked but apparently lost it. I am very interested in other related literature as well.


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Just to be sure: you don't mean this paper: ena.lp.edu.ua:8080/bitstream/ntb/2983/1/110.pdf, do you? –  Bob Jansen Jul 31 at 19:43
This paper is better but a worse match to your question: research-and-analytics.csfb.com/docView?docid=GaEE3h –  Bob Jansen Jul 31 at 20:24
@BobJansen, unfortunately not (the paper I came across was a published in 2014, sorry should have mentioned that), but nonetheless thank you for the two links, the first paper I was aware of but unfortunately aims at different objectives (raw material price minimization of variances) –  Matt Wolf Aug 1 at 9:58

1 Answer 1

Try the BIS, they are the experts in this area. http://www.bis.org/statistics/eer/

There are two papers there which explain the methodology behind their currency indices.

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Thanks, I am familiar with the BIS methodology, but I am not looking for trade weighted indices. As mentioned I look for methodologies that exclusively source pricing data and preferably approaches that strip out individual currency strength/weakness –  Matt Wolf Jul 31 at 9:22

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