G2TT
来源类型Discussion paper
规范类型论文
来源IDDP8291
DP8291 Carry Trades and Global Foreign Exchange Volatility
Lukas Menkhoff; LUCIO SARNO; Paul Schrimpf; Maik Schmeling
发表日期2011-03-14
出版年2011
语种英语
摘要We investigate the relation between global foreign exchange (FX) volatility risk and the cross-section of excess returns arising from popular strategies that borrow in low interest rate currencies and invest in high-interest rate currencies, so-called 'carry trades'. We find that high interest rate currencies are negatively related to innovations in global FX volatility and thus deliver low returns in times of unexpected high volatility, when low interest rate currencies provide a hedge by yielding positive returns. Our proxy for global FX volatility risk captures more than 90% of the cross-sectional excess returns in five carry trade portfolios. In turn, these results provide evidence that there is an economically meaningful risk-return relation in the FX market. Further analysis shows that liquidity risk also matters for expected FX returns, but to a lesser degree than volatility risk. Finally, exposure to our volatility risk proxy also performs well for pricing returns of other cross sections in foreign exchange, U.S. equity, and corporate bond markets.
主题Financial Economics ; International Macroeconomics
关键词Carry trade Forward premium puzzle Liquidity Volatility
URLhttps://cepr.org/publications/dp8291
来源智库Centre for Economic Policy Research (United Kingdom)
资源类型智库出版物
条目标识符http://119.78.100.153/handle/2XGU8XDN/537127
推荐引用方式
GB/T 7714
Lukas Menkhoff,LUCIO SARNO,Paul Schrimpf,et al. DP8291 Carry Trades and Global Foreign Exchange Volatility. 2011.
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