Download or read book Explaining the Returns to the Carry Trade written by Maya Bandia and published by . This book was released on 2021 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Handbook of Exchange Rates written by Jessica James and published by John Wiley & Sons. This book was released on 2012-05-29 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.

Download or read book Carry trades and risk written by Craig Burnside and published by . This book was released on 2011 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Carry trades, in which an investor borrows a low interest rate currency and lends a high interest rate currency, have been profitable historically. The risk exposure of carry traders might explain their high returns, but conventional models of risk do not work because traditional risk factors, used to price the stock market, do not price currency returns. Less traditional factors that are more successful in explaining currency returns, are, however, unsuccessful in explaining the returns to the stock market. More exotic models of "crisis risk" are another possibility, but I show that any time-variation in the exposure of the carry trade to market risk has been insufficient, in sample, to explain the average returns earned by carry traders. Instead, peso events remain a candidate explanation of the returns to the carry trade.

Download or read book The Rise of Carry The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis written by Tim Lee and published by McGraw Hill Professional. This book was released on 2019-12-13 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: Protect yourself from the next financial meltdown with this game-changing primer on financial markets, the economy—and the meteoric rise of carry. The financial shelves are filled with books that explain how popular carry trading has become in recent years. But none has revealed just how significant a role it plays in the global economy—until now. A groundbreaking book sure to leave its mark in the canon of investing literature, The Rise of Carry explains how carry trading has virtually shaped the global economic picture—one of decaying economic growth, recurring crises, wealth disparity, and, in too many places, social and political upheaval. The authors explain how carry trades work—particularly in the currency and stock markets—and provide a compelling case for how carry trades have come to dominate the entire global business cycle. They provide thorough analyses of critical but often overlooked topics and issues, including: •The active role stock prices play in causing recessions—as opposed to the common belief that recessions cause price crashes •The real driving force behind financial asset prices •The ways that carry, volatility selling, leverage, liquidity, and profitability affect the business cycle •How positive returns to carry over time are related to market volatility—and how central bank policies have supercharged these returns Simply put, carry trading is now the primary determinant of the global business cycle—a pattern of long, steady but unspectacular expansions punctuated by catastrophic crises. The Rise of Carry provides foundational knowledge and expert insights you need to protect yourself from what have come to be common market upheavals—as well as the next major crisis.

Download or read book Carry and Trend Following Returns in the Foreign Exchange Market written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Carry Trades and Tail Risk of Exchange Rates written by Chanaka N. Ganepola and published by . This book was released on 2018 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Historically, Carry trades have been a success story for most investor and a major source of funds for emerging economies maintaining higher interest rates. Therefore it's a timely topic to investigate the risk embedded in such transactions and to what extent the carry trade returns explain the tail risk. Initially, this research estimates the tail index of all the currencies and formulates a unique inverse function for all the currencies in relation to Power laws, with the idea of estimating the respective Value-at-Risk. This research considers twenty five currencies and replicates them in to five portfolios based on the annualised daily return of a weekly forward contract. Trade was executed assuming a U.S. investor, who goes long in a high return portfolio and short in a low return portfolio. Further, this research examines the impact of carry trade returns on the overall tail risk within the context of foreign exchange and interest rate gain in long and short positions of the trade. The results indicate that tail risk cannot be explained effectively by its returns because of its exponential nature. However, I find that tail risk is mostly influenced by the long position of the carry trade. Furthermore, the return of the foreign exchange component appears to have a better explanation on the tail risk compared to the interest rate return. The Value-at-Risk analysis also suggests that the tail risk of overall strategy is influenced by the tail risk of foreign exchange component embedded in the long position of the trade.

Download or read book Uncovered Interest Parity and Carry Trades written by Torsten Abendroth and published by GRIN Verlag. This book was released on 2017-01-18 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2016 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,0, University of Frankfurt (Main) (Goethe Business School), language: English, abstract: The aim of this thesis is to test UIP by implementing an OLS regression analysis for five currency pairs which, according to CFTC data, global turnover data and carry-to-risk ratios, were among the most popular in the investor community. To increase the significance of this thesis for practitioners, the work will use one-month forward contracts which are used frequently by investors and include bid and ask rates in order to account for transaction costs. In addition, all currency pairs include the US Dollar for reasons of better liquidity, and therefore tighter bid-ask spreads. Moreover, this thesis will present recent findings in literature which try to explain deviations from UIP. Approaches can be separated by the focus on a risk premium, by irrational market behavior or by learning problems and market inefficiency. While most focus is laid on an explanation by a risk premium, it will be shown that it is crucial to combine the different scientific disciplines in order to solve the forward premium puzzle. In addition to this, the thesis will provide an outlook on the future attractiveness of carry trade strategies.

Download or read book The Carry Trade written by Kent Daniel and published by . This book was released on 2014 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine carry trade returns formed from the G10 currencies. Performance attributes depend on the base currency. Dynamically spread-weighting and risk-rebalancing positions improves performance. Equity, bond, FX, volatility, and downside equity risks cannot explain profitability. Dollar-neutral carry trades exhibit insignificant abnormal returns, while the dollar exposure part of the carry trade earns significant abnormal returns with little skewness. Downside equity market betas of our carry trades are not significantly different from unconditional betas. Hedging with options reduces but does not eliminate abnormal returns. Distributions of drawdowns and maximum losses from daily data indicate the importance of time-varying autocorrelation in determining the negative skewness of longer horizon returns.

Download or read book The Tail Risk Premia of the Carry Trades written by Philippe Dupuy and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the relationship between the excess returns of portfolios invested in carry trade positions and a set of candidate risk factors including an innovative tail risk factor. We find that high interest rate currencies are related to innovations in global currency tail risk. They deliver low returns in time of unexpected high tail risk and high returns in time of unexpected low tail risk suggesting a standard Asset Pricing Theory approach to explaining the returns to the carry trade. Furthermore, our tail risk factor seems to price the returns to the carry trade better than factors such as volatility or skewness tested earlier in the literature. This result is natural because, by its construction, our indicator aggregates in one single variable all the information that these concurrent factors convey. And it makes sense since the ultimate risk for carry traders is to reach their funding limits which are set, because of the regulations, on the back of tail risk statistics (Value at Risk) and not simply on the back of the volatility or the skewness alone. The result holds whether the global tail risk indicators are estimated in the currency, the equity or the bond market.

Download or read book Carry Trade Returns and Segmented Risk Pricing written by Gordon Schulze and published by . This book was released on 2019 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: The returns to carry trades are controversially discussed as there seems to be no unifying risk-based explanation of currency returns and stock returns. This paper addresses carry trade returns from a risk pricing perspective and examines if these returns can be connected to persistent cross-country differences of risk aversion. Therefore, I analyze a data set of individual carry trade currencies. Based on a GMM estimation, I find significantly large and persistent cross-country differences of risk aversion in the interest rate market compared to the implied risk aversion in the stock market. In this context, investment currencies are more sensitive to U.S. consumption risk while funding currencies provide a hedge. However, this also implies that there is no unifying SDF and consequently, both the interest rate market and the stock market appear to be segmented in risk pricing for carry trade countries.

Download or read book Leveraging Excess Return written by Joseph Kearns and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, I investigate the violation of uncovered interest rate parity in the foreign exchange market. Bias in the pricing of forward exchange rates relative to future spot exchange rates suggests there are profitable opportunities in the spot market. The carry trade is an investment strategy in which an investor borrows in a low interest rate currency and invests the proceeds in an asset denominated in a high interest rate currency like a certificate of deposit, government bond, or equity share. The positive excess returns generated by carry trades for many exchange rates in this paper contradict the uncovered interest rate parity condition. This paper uses a variant of the Consumption-Based Capital Asset Pricing Model (C-CAPM) articulated by John Cochrane to assess the predictability of carry trade excess returns. Ordinary least squares and robust regressions show that the magnitude of C-CAPM's ability to explain variation in excess returns can be strong in certain time periods, but is time-varying in general. A fixed effects univariate panel regression more clearly demonstrates that the excess returns for all of the funding currencies can have between 45% and 76% of their variation over explained by C-CAPM. The model also explains a substantial percentage of the variation in carry trades going long on one-year government bonds and large cap equity indices. The results of this paper suggest that excess returns of the carry trade are forecastable with C-CAPM, but the strength of the model's forecasting power varies across countries and time.

Download or read book Standard and Optimized Carry Trades written by Jurij-Andrei Reichenecker and published by . This book was released on 2017 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Drawdown periods of standard carry trades are primarily the result of losses in classic carry trade currencies. These periods coincide with an increased financial stress, such as the recent financial crisis. The introduced optimized carry trades employ a dynamic weighting scheme for currencies, which incorporates general risk components. Optimized carry trades are therefore less exposed to losses under financial stress, and provide an enhanced risk-return profile over the entire and second half of the sample period and during periods of volatile markets. These results find robust statistical evidence. Furthermore, optimized carry trades have a lower correlation with traditional asset classes than standard carry trades. Traditional models of risk are less successful in explaining the returns of optimized carry trades.

Download or read book The Evidence and Impact of Financial Globalization written by Gerard Caprio and published by Academic Press. This book was released on 2012-11-27 with total page 807 pages. Available in PDF, EPUB and Kindle. Book excerpt: The sharp realities of financial globalization become clear during crises, when winners and losers emerge. Crises usher in short- and long-term changes to the status quo, and everyone agrees that learning from crises is a top priority. The Evidence and Impact of Financial Globalization devotes separate articles to specific crises, the conditions that cause them, and the longstanding arrangements devised to address them. While other books and journal articles treat these subjects in isolation, this volume presents a wide-ranging, consistent, yet varied specificity. Substantial, authoritative, and useful, these articles provide material unavailable elsewhere. Substantial articles by top scholars sets this volume apart from other information sources Rapidly developing subjects will interest readers well into the future Reader demand and lack of competitors underline the high value of these reference works

Download or read book Good Carry Bad Carry written by Geert Bekaert and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We distinguish between "good" and "bad" carry trades constructed from G-10 currencies. The good trades exhibit higher Sharpe ratios and sometimes positive return skewness, in contrast to the bad trades that have both substantially lower Sharpe ratios and highly negative return skewness. Surprisingly, good trades do not involve the most typical carry currencies like the Australian dollar and Japanese yen. The distinction between good and bad carry trades significantly alters our understanding of currency carry trade returns, and invalidates, for example, explanations invoking return skewness and crash risk.

Download or read book From Carry Trades to Curvy Trades written by and published by . This book was released on 2018 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional carry trade strategies are based on differences in short-term interest rates, neglecting any other information embedded in yield curves. We derive return distributions of carry trade portfolios among G10 currencies, where the signals to buy and sell currencies are based on summary measures of the yield curve, the Nelson-Siegel factors. We find that a strategy based on the relative curvature factor, the curvy trade, yields higher Sharpe ratios and a smaller return skewness than traditional carry trade strategies. Curvy trades build less upon the typical carry currencies, like the Japanese yen and the Swiss franc, and are hence less susceptible to crash risk. In line with that, standard pricing factors of traditional carry trade returns, such as exchange rate volatility, fail to explain curvy trade returns in a linear asset pricing framework. Our findings are in line with recent interpretations of the curvature factor. A relatively high curvature signals a relatively higher path of future short-term rates over the medium-term putting upward pressure on the currency.

Download or read book Can Carry Trades Explain Hedge Fund Returns written by Jonas Clemens and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis develops a comprehensive risk-factor coefficient to examine the relationship between currency carry trades and hedge fund returns. I find that the proposed carry risk factor (CTF) significantly explains the time-series variation in hedge fund performance. Including the estimated CTF into the standard Fung and Hsieh (2004) seven-factor model increases the explanatory power of my benchmark regression by 4.4%. Furthermore, the estimated CTF significantly explains the cross-section variation in hedge fund performance. In this regard, I show that hedge funds that load on carry trade exposure exhibit higher future fund returns when controlling for a variety of fund characteristics. At last, I demonstrate that also other types of carry coefficients developed by Koijen et al. (2018) significantly explain the time-series variation in hedge fund performance.

Download or read book Currency Carry Trades written by Blake Mitchell and published by . This book was released on 2023-08-15 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dive into the world of Forex trading with confidence and strategy through 'Mastery of Forex Carry Trading.' This definitive guide offers traders a comprehensive resource to navigate the intricate landscape of currency carry trading, an artful strategy that capitalizes on interest rate differentials. Begin your journey with a compelling Introduction that sets the stage for the fascinating world of Forex trading. Chapter 1, 'Fundamentals of Forex Trading and Interest Rates, ' lays the foundation by demystifying the critical relationship between currency markets and interest rates. In Chapter 2, explore 'The Concept of Carry Trade Strategy, ' uncovering the essence of a tactic that exploits interest rate disparities. Navigate the realm of currency relationships with Chapter 3's 'Analyzing Currency Correlations, ' equipping you to make informed trading decisions. Discover the 'Factors Affecting Exchange Rates' in Chapter 4, empowering you with insights into the forces that drive currency fluctuations. Chapter 5 introduces 'Interest Rate Parity Theories, ' deepening your understanding of the underpinnings of interest rate differentials. Master the skill of 'Identifying High-Yield and Low-Yield Currencies' with Chapter 6, optimizing your choices for lucrative carry trades. Leverage technical analysis in Chapter 7, as 'Technical Analysis in Currency Carry Trades' guides you to interpret charts and indicators. Chapter 8 introduces 'Fundamental Analysis in Currency Carry Trades, ' combining economic insights with your trading strategy. Secure your investments with Chapter 9's 'Risk Management in Currency Carry Trades, ' ensuring a sound approach to risk mitigation. Explore 'Psychological Aspects of Currency Carry Trading' in Chapter 10, understanding the mental dynamics driving successful trades. In Chapter 11, 'Formulating and Executing Carry Trade Strategies, ' you'll acquire the tools to design and implement your strategies. Chapter 12 delves into 'The Strategic Essence of Currency Carry Trading, ' helping you refine your approach for optimal results. Navigate the psychological nuances with Chapter 13, exploring 'Psychological Aspects of Carry Trading' to maintain confidence. Gain real-world insights through 'Carry Trading Case Studies' in Chapter 14, witnessing successful strategies in action. Chapter 15 examines 'Global Economic Trends and Carry Trades, ' revealing how worldwide trends impact currency markets. Navigate regulations with Chapter 16's 'Regulatory Considerations in Forex Trading, ' ensuring compliance in your trades. Discover 'Alternative Carry Trade Strategies' in Chapter 17, expanding your toolkit for diverse market conditions. Chapter 18 explores the 'Future Outlook for Carry Trading, ' offering a glimpse into the evolving landscape of this dynamic strategy. Conclude your enriching journey with the Conclusion, ready to apply your knowledge and embrace the thrilling world of Forex carry trading. Enhance your understanding with the Appendix: 'Glossary of Key Terms, ' ensuring you're well-versed in the language of currency markets. Whether you're a seasoned trader or a newcomer to Forex, 'Mastery of Forex Carry Trading' equips you with the insights and skills to excel in currency carry trading and master the intricacies of interest rate d