boom yields consistently positive excess returns. This excess return compensates for the risk of high negative returns in … countries on risk aversion, and low (high) risk aversion currencies depreciate (appreciate) in times of global turmoil. …

world. We show that even in this market exposure to liquidity risk commands a non-trivial risk premium of up to 3.6% per … annum. In particular, systematic and currency-specific liquidity risk are not subsumed by existing risk factors and … significantly correlated. This lends support to a liquidity-based explanation of the carry trade risk premium. To illustrate this …

fundamental macroeconomic risk. The cross-country high-minuslow (HML) conditional skewness of the unemployment gap - our measure …

risk. Given that the top market makers in foreign exchange are at the heart of the market's information aggregation process …

a time-varying risk premium consistent with that bias. Using ten years of data on FX order flow we find that more than … find that carry trading increases currency-crash risk in that order flow generates negative skewness in FX returns. …

-specific risk factors and use the joint conditional distribution of these components to obtain forecasts of future carry trade … competing models. We show that the forecasting gains translate into economically and statistically significant (risk …