Subprime Mortgage Crisis Detection in U.S. Foreign Exchange Rate Market by Multifractal Analysis

We apply multifractal methods to analyze the impact of American subprime mortgage crisis on American foreign exchange market. By analyzing the local Holder exponent alpha and the multifractal spectrum of Japanese Yen to U.S. Dollar (USD/JPY) exchange rate and Euro to U.S. Dollar (EUR/USD) exchange rate ticked every hour from late 2006 to early 2008, we find that the periods where critical events took place are characterized by sudden increase in alpha, which passes above 1, followed by very small values for long period of time. To observe the effect and future trend of the subprime mortgage crisis, we compare the multifractal spectrum before, and during the crisis. The width of f(alpha) during subprime mortgage crisis is much bigger than the one before the crisis. These results provide solid and important values for further study on the dynamic mechanism of exchange market price fluctuation.