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Although, according to uncovered interest rate parity, exchange rates should move so as to prevent the carry trade being systematically profitable, there is a vast empirical literature demonstrating the opposite. High interest currencies more often tend to appreciate rather than depreciate, as...
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This study empirically examines the effect of foreign exchange (FX) market liquidity risk and volatility on the excess … returns of currency carry trades. In contrast to the existent literature, we construct an alternative proxy of liquidity risk … evidence that uncovered interest parity (UIP) puzzle can be resolved after controlling for liquidity risk and market volatility …
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I investigate the relationship between carry trades and tail risk for a panel of commodity futures contracts. Unlike … significant effect on tail risk mostly in the short term and for the front end of the futures curve. In addition, the empirical … speculators and insurance providers are subject to limited risk capacity and financing liquidity constraints …
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