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Currency Regimes and the Carry Trade

Accominotti, Olivier and Cen, Jason and Chambers, David and Marsh, Ian W (2019) 'Currency Regimes and the Carry Trade.' Journal of Financial and Quantitative Analysis. ISSN 0022-1090 (In Press)

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Abstract

This study exploits a new long-run data set of daily bid and offered exchange rates in spot and forward markets from 1919 to the present to analyze carry returns in fixed and floating currency regimes. We first find that outsized carry returns occur exclusively in the floating regime, being zero in the fixed regime. Second, we show that fixed-to-floating regime shifts are associated with negative returns to a carry strategy implemented only on floating currencies, robust to the inclusion of volatility risks. These shifts are typically characterized by global flight-to-safety events that represent bad times for carry traders.

Item Type: Article
Uncontrolled Keywords: Exchange rates, Carry strategy, Currency factors, Floating currencies
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 26 Feb 2019 13:43
Last Modified: 26 Feb 2019 13:43
URI: http://repository.essex.ac.uk/id/eprint/24125

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