This paper considers what we argue was the first experiment of a exchange rate band. This experiment took place in Austria-Hungary between 1896 and 1914. The rationale of introducing this policy rested on precisely those intuitions that modern target zone literature has recently emphasized: the...

The yen carry trade between the US and Japan has existed as a feasible investment strategy in direct violation of the uncovered interest parity (UIP) condition. Using yen-dollar spot and forward exchange rate data from 1993 thorough 2007, I demonstrate that the forward exchange rate quoted in...

I propose a new factor – the global downside market factor – to explain high returns to carry trades. I show that carry trades have high downside market risk, i.e. they crash systematically in the worst states of the world when the global stock market plunges or when a disaster occurs. The...