Showing 1 - 10 of 232
A wave of recent research has studied the predictability of foreign currency returns. A wide variety of forecasting structures have been proposed, including signals such as carry, value, momentum, and the forward curve. Some of these have been explored individually, and others have been used in...
Persistent link: https://www.econbiz.de/10013136738
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,...
Persistent link: https://www.econbiz.de/10013121721
Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases. The local currency term premia, which increase with the maturity, offset the currency risk premia. The time-series predictability of foreign bond returns in dollars...
Persistent link: https://www.econbiz.de/10013073193
The carry trade is the investment strategy of going long in high-yield target currencies and short in low-yield funding currencies. Recently, this naive trade has seen very high returns for long periods, followed by large crash losses after large depreciations of the target currencies. Based on...
Persistent link: https://www.econbiz.de/10013154539
Figures for 1995 estimate trading by dealers in the foreign exchange market at over $1,200 billion per day, most of it with other dealers. Some have linked this volume to concerns of excessive volatility in the market. Tobin's proposal to address this volatility with a small tax on all foreign...
Persistent link: https://www.econbiz.de/10012774984
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....
Persistent link: https://www.econbiz.de/10012895473
We document evidence consistent with retail day traders in the Forex market attributing random success to their own skill and, as a consequence, increasing risk taking. Although past performance does not predict future success for these traders, traders increase trade sizes, trade size...
Persistent link: https://www.econbiz.de/10012994895
We discuss the foreign currency forward premium puzzle in the context of 20 internationally tradable emerging market currencies. We find that since the late 1990s the broad basket of emerging market currencies has provided significant equity-like excess returns against a number of major market...
Persistent link: https://www.econbiz.de/10013240581
This paper develops a stochastic equilibrium model of an open economy incorporating speculation in the forward exchange market. The model is used to examine two issues. The first is the role of speculation in stabilizing the economy against stochastic disturbances. Much risk averse speculation...
Persistent link: https://www.econbiz.de/10013247678
We study the cross-sectional variation of carry-trade-generated currency excess returns in terms of their exposure to global macroeconomic fundamental risk. The risk factor is the cross-country high-minus-low conditional skewness of the unemployment rate gap. It gives a measure of global...
Persistent link: https://www.econbiz.de/10012948089