Farhi, Emmanuel; Fraiberger, Samuel P.; Gabaix, Xavier; … - C.E.P.R. Discussion Papers - 2009
How much of carry trade excess returns can be explained by the presence of disaster risk? To answer this question, we … propose a simple structural model that includes both Gaussian and disaster risk premia and can be estimated even in samples … risk premia account for about 25% of expected carry trade excess returns in advanced countries. …