Many of the leading models of the carry trade imply that, contrary to the empirical evidence, a country's currency depreciates in times of high consumption and output growth, a manifestation of the Backus and Smith (1993) puzzle. We propose a modification of these models to account for financial...

This report seeks to shed light on the characteristics of currency carry trades in Latin America. Partly reflecting the degree of financial market integration and development, as well as the effects of regulation, carry trades in the region have typically been implemented by taking long forward...

This study investigates carry trade diversification opportunities and linkages of major carry trade currencies on five different investment horizons. Using daily data on eight currencies and LIBOR rates, we examine the temporal structure of correlations and assess portfolio diversification...

In this paper, we analyse the relationship between the currency carry return and volatility and liquidity risk factors. We find that both categories of risk factors are relevant to understanding and explaining carry return, with an outperformance for volatility ones especially the global FX...

The study investigates the profitability of 1024 moving average and momentum models and their components in the yen/dollar market. It turns out that all models would have been profitable between 1976 and 1999. The pattern of profitability is as follows. The models produce more single losses than...

In this paper, I study individual currency pairs and examine the behavior of the cross section of their carry returns with the USD. Developed and emerging market carry trades yield high Sharpe ratios even after adjusting for transaction costs. I show that carry trade risks carry trade risks are...

The failure to empirically prove uncovered interest rate parity conditions seems to be related to the presence of risk premia on foreign currencies. Recent studies suggest that either consumption- or currency-return-based pricing factors explain the cross section of foreign currency portfolio...

We analyze the returns to targeting the Australian, New Zealand and South African currencies, through Japanese yen-funded forward market speculation – with a particular focus on the South African rand. Targeting the rand through forward currency speculation generates returns which are as...

Uncovered interest rate parity (UIRP) indicates that international yield differentials reflect expected depreciation of the high-yield currency. However high-yield currencies tend to appreciate, at least in the short run, which implies predictable currency excess returns and trading...

Carry trades are speculative activities which involve simultaneously going short a low-rate currency and long a high-rate currency. They are profitable as long as the gains from interest rate differentials are not offset by exchange rate movements. In this paper I investigate the dynamic...