Download or read book The Carry Trade Risk Factor on U S Stock Returns written by Jairo Andrés Rendón and published by . This book was released on 2011 with total page 35 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 Common Information in Carry Trade Risk Factors written by Joseph Byrne and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Carry returns have been widely observed in the FX market. This study exploits the common information embedded in several factors previously identified as relevant to carry trade returns. We find that the extracted common factor successfully models the time series and cross-sectional characteristics of carry returns. Empirical evidence is presented that the common factor produces smaller pricing errors than other well known factors, such as innovations of exchange rate volatility and the downside stock market excess return. Our results also suggest that stock market risk is somewhat segmented from FX market risk.
Download or read book Carry Trades and Risk written by Craig Burnside and published by . This book was released on 2011 with total page 36 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 -- National Bureau of Economic Research web site.
Download or read book Market Liquidity written by Yakov Amihud and published by Cambridge University Press. This book was released on 2013 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores the effect of liquidity on asset prices, liquidity variations over time and how liquidity risk affects prices.
Download or read book The Carrry Trade Risk Factor on U S Stock Returns written by Jairo A. Rendon and published by . This book was released on 2011 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Determinants of Carry Trade Risk Premia written by Aidan Corcoran and published by . This book was released on 2011 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests a factor-based explanation for positive excess carry trade returns. Equity market risk of the countries in the carry trade portfolio, a new factor in the literature, is significantly priced after controlling for commonly cited factors. One motivation for this factor is via changes in investors' allocations between equity and safer instruments brought about by changes in risk aversion. Strong equity returns in funding currencies are associated with weak carry trade returns, and vice versa, however equity betas are subject to significant time variation.
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 The Carry Trade written by Kent D. Daniel and published by . This book was released on 2017 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find important differences in dollar-based and dollar-neutral G10 carry trades. Dollar-neutral trades have positive average returns, are highly negatively skewed, are correlated with risk factors, and exhibit considerable downside risk. In contrast, a diversified dollar-carry portfolio has a higher average excess return, a higher Sharpe ratio, minimal skewness, is uncorrelated with standard risk-factors, and exhibits no downside risk. Distributions of drawdowns and maximum losses from daily data indicate a role for time-varying autocorrelation in determining negative skewness at longer horizons.
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 Carry Trade in Emerging Markets written by Yucheng Jiang and published by . This book was released on 2017 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds that currency carry trade, which is borrowing money from a low interest rate country and lending it into a high interest rate country, can generate high excess profits and high alpha in both developed and emerging markets. The profit from G-10 country carry trade is mainly from strong exchange rates, while most of the emerging markets carry trades profits are from the huge interest rate differential. Emerging market (EM) data are more favorable to the UIP hypothesis that high interest rate currency is usually depreciated, but G-10 countries are the opposite. By using quantile regression, we find that higher interest rate differential is usually associated with the exchange rate crash of the high interest rate currency. In addition, carry trade portfolios are exposed to multiple risk factors. Those factors are more significant at the low tail distribution of returns. Commodities prices and emerging market equities index positively predicted next month's carry trade return. Liquidity condition in the U.S. is negatively related to G-10 country carry trade, but not related to emerging markets. Finally, high country risk predicted high carry trade return.
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 Innovations in Quantitative Risk Management written by Kathrin Glau and published by Springer. This book was released on 2015-01-09 with total page 434 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quantitative models are omnipresent –but often controversially discussed– in todays risk management practice. New regulations, innovative financial products, and advances in valuation techniques provide a continuous flow of challenging problems for financial engineers and risk managers alike. Designing a sound stochastic model requires finding a careful balance between parsimonious model assumptions, mathematical viability, and interpretability of the output. Moreover, data requirements and the end-user training are to be considered as well. The KPMG Center of Excellence in Risk Management conference Risk Management Reloaded and this proceedings volume contribute to bridging the gap between academia –providing methodological advances– and practice –having a firm understanding of the economic conditions in which a given model is used. Discussed fields of application range from asset management, credit risk, and energy to risk management issues in insurance. Methodologically, dependence modeling, multiple-curve interest rate-models, and model risk are addressed. Finally, regulatory developments and possible limits of mathematical modeling are discussed.
Download or read book The Carry Trade and Implied Moment Risk written by Michael Broll and published by . This book was released on 2016 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The carry trade is a zero net investment strategy that borrows in low yielding currencies and subsequently invests in high yielding currencies. It has been identified as highly profitable FX strategy delivering significantly excess returns with high Sharpe ratios. This paper shows that these excess returns are especially compensation for bearing FX variance and negative skewness risk. Additionally, factor risks that affect foreign money changes, foreign inflation changes, as well as changes to a newly developed Carry Trade Activity Index and the VIX index, as a proxy for global risk aversion, make up the carry trade risk anatomy. These findings are not exclusively important for carry traders, but also contribute to the understanding of currency risk in the cross-section. This is directly linked to asset pricing tests from Lustig et al. (2011), which have shown that currency baskets sorted on their interest rate differentials are all exposed to carry trade returns as a risk factor. Furthermore, this paper finds evidence that a decreased level of funding liquidity potentially leads to carry trade unwindings, controlling for equity and FX implied variance and skewness effects, which supports the theoretical model of liquidity spirals developed by Brunnermeier and Pedersen (2009).
Download or read book Carry Trade Indices written by Johannes Tüxen and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the risk premia and performance of a popular currency trading strategy called the carry trade. The carry trade earns the interest differential by borrowing in low interest rate currencies and investing in high interest rate currencies. The risk factors taken into perspective are the well discussed liquidity risk, global foreign exchange volatility and loadings on US consumption growth. In addition a novel factor - the sovereign default probability - is introduced. By using global changes in credit default swap spreads as a proxy the results show that sovereign default probability is negatively related to carry trade returns. The analysis includes current carry trade products and theoretical build portfolios. Through single and multiple linear regressions I find that currency crash risk, global FX volatility and sovereign default are key risk drivers. Out-of-sample tests further conclude that the risk exposure significantly increases during times of global financial crisis. In addition, portfolios using mean-variance optimization algorithms can reduce the risk exposure.
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.
