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FX liquidity risk and carry trade premia

Söderlind, Paul; Somogyi, Fabricius - 2022

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 … successfully price the cross-section of currency returns. However, we also find that liquidity and carry trade premia are …

Persistent link: https://www.econbiz.de/10013252868

The Forward Premium Bias, Carry Trade Return and the Risks of Volatility and Liquidity

Shehadeh, Ali - 2016

In this paper, we analyse the relationship between the currency carry return and volatility and liquidity risk factors …

Persistent link: https://www.econbiz.de/10012989965

Carry trades, order flow and the forward bias puzzle

Breedon, Francis J.; Rime, Dagfinn; Vitale, Paolo - 2015

We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time-varying risk premium consistent with that bias....

Persistent link: https://www.econbiz.de/10011396784

Foreign exchange predictability during the financial crisis : implications for carry trade profitability

Anatolyev, Stanislav; Gospodinov, Nikolaj; Jamali, Ibrahim - 2015

In this paper, we study the effectiveness of carry trade strategies during and after the financial crisis using a flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability...

Persistent link: https://www.econbiz.de/10011313235

The Performance of NDF Carry Trades

Doukas, John A. - 2013

by global FX volatility and crash risk, liquidity risk, and currency convertibility risk measured by deviations from …

Persistent link: https://www.econbiz.de/10013083923

Economic Momentum and Currency Returns

Dahlquist, Magnus - 2019

Past trends in fundamentals linked to economic activity and inflation predict currency returns. We find that a trading strategy that goes long currencies with strong economic momentum and short currencies with weak economic momentum exhibits an annualized Sharpe ratio of 0.70 and yields a...

Persistent link: https://www.econbiz.de/10012904397

Diversification Role of Currency Momentum for Carry Trade : Evidence from Financial Crises

Yamani, Ehab Abdel-Tawab - 2019

The main objective of this paper is to investigate the diversification role of currency momentum for carry trade crashes during the turbulent periods surrounding the 1997-1998 Asian financial crisis and the 2007-2008 global financial crisis. The motivation is to use an important tendency of...

Persistent link: https://www.econbiz.de/10012898585

Currency Carry Trades, Position-Unwinding Risk, and Sovereign Credit Premia

Huang, Huichou - 2016

puzzle can be understood as a composite story of sovereign credit premia, global liquidity imbalances and reversal. We …

Persistent link: https://www.econbiz.de/10013007414

Carry Trade Strategies Based on Option-Implied Information : Evidence from a Cross-Section of Funding Currencies

Chen, Steven Shu-Hsiu - 2018

We document carry trade returns based on the moments extracted from options on the underlying currencies. We establish three important results. First, a currency pair is predicted to have greater excess returns if option-implied returns are more volatile, are more left-skewed, and have fatter...

Persistent link: https://www.econbiz.de/10012927584

Dollar Carry Timing

de Oliveira Souza, Thiago - 2021

Dollar carry trade risk premiums – unlike dollar-neutral or foreign exchange carry risk premiums – are positively correlated with firm-level dispersions in investment, profitability, and book-to-market in addition to the Treasury-bill rate, long term bond yield, term spread, and default...

Persistent link: https://www.econbiz.de/10013242629

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