Christiansen, Charlotte; Ranaldo, Angelo; Söderlind, Paul - In: Journal of Financial and Quantitative Analysis 46 (2011) 04, pp. 1107-1125
We explain the currency carry trade (CT) performance using an asset pricing model in which factor loadings are regime dependent rather than constant. Empirical results show that a typical CT strategy has much higher exposure to the stock market and is mean reverting in regimes of high foreign...