Impact of macro-economic surprises on carry trade activity

Hutchison, Michael M.; Sushko, Vladyslav

doi:10.1016/j.jbankfin.2012.10.022

Cited by 29 publications

(21 citation statements)

References 33 publications

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“…It thus has the opposite sign to the theoretical one, possibly because the effect of a higher carry on this variable at time period t is already captured by the interest rate differential. These results are similar to those reported by Hutchison and Sushko (2013), who find a close link between risk reversals and speculative futures positions in the Japanese yen. Something similar occurs with return z t .…”

Section: The Relationship Between the Currency Carry Trade And Turbulsupporting

confidence: 91%

The Chilean peso exchange-rate carry trade and turbulence

Cox¹,

Carreño²

2017

CEPAL Review

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In this study we provide evidence regarding the relationship between the Chilean peso carry trade and currency crashes of the peso against other currencies. Using a rich dataset containing information from the local Chilean forward market, we show that speculation aimed at taking advantage of the recently large interest rate differentials between the peso and developedcountry currencies has led to several episodes of abnormal turbulence, as measured by the exchange-rate distribution's skewness coefficient. In line with the interpretative framework linking turbulence to changes in the forward positions of speculators, we find that turbulence is higher in periods during which measures of global uncertainty have been particularly high.

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Section: The Relationship Between the Currency Carry Trade And Turbulsupporting

confidence: 91%

The Chilean peso exchange-rate carry trade and turbulence

Cox¹,

Carreño²

2017

CEPAL Review

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“…Huchison and Sushko () report similar close link between Japanese yen carry trade risk reversal and yen speculative futures position.…”

mentioning

confidence: 78%

“…These are futures market traders' position taking which can be used as an indicator of carry trade activities. Currency futures are commonly used for speculative purposes and the net positions of currency speculators may be used as a proxy for carry trade positions as in Brunnermeier et al () and Huchison and Sushko (). The Commodity Futures Trading Commission (CFTC) in the US compiles a weekly open positions (long and short positions) report on the futures contracts traded in the Chicago Mercantile Exchange.…”

Section: Robustness Estimations—carry Trades At Weekly Horizonmentioning

confidence: 99%

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Currency Carry Trades: The Role of Macroeconomic News and Futures Market Speculation

Kim

2016

Journal of Futures Markets

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This paper investigates carry trade opportunities in major currencies against the US dollar over the period January 2, 1999 to December 31, 2012. There is evidence of significant Australian dollar (AUD), Euro, and Japanese yen (JPY) carry trades during noncrisis periods. The AUD (JPY) was an investment (a funding) currency, and the Euro was both. However, cross currency carry trades were not present. For the AUD and JPY, carry trades were more likely with low volatility and volume. Macroeconomic news that appreciate (depreciate) the AUD (the JPY) also stimulated the AUD (the JPY) carry trades. However, there is no evidence of meaningful and consistent impact of macroeconomic news on the EUR carry trades. For weekly horizon investigations, net long futures positions in the AUD promoted carry trades in the AUD and JPY. However, net long positions in the JPY only managed to reduce JPY carry trade probability. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:1076–1107, 2016

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“…The information carried by such exchange rate signals or variables in our globalized economies is indeed at the crossroad of several other dynamic variables such as the balance of payments between the country considered and the rest of the world, the international interest rates, and yield curves joint dynamics. In addition, it is known that such signals can be strongly influenced by speculators' 3 interventions on financial markets (Anzuini & Fornari, 2012;Brunnermeier, Nagel, & Pedersen, 2008;Fong, 2013;Hutchison & Sushko, 2013). In response to the behavior of the exchange rate signals and knowledge of their influence and reactivity to different macroeconomic environments, there has developed a popular currency trading strategy named the currency carry trade.…”

Section: The Currency Market and Carry Tradementioning

confidence: 99%

Understanding the interplay between covariance forecasting factor models and risk‐based portfolio allocations in currency carry trades

Ames

Bagnarosa

Peters

et al. 2018

Journal of Forecasting

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With the exception of naive methods for portfolio selection, such as the equal weighted approaches, all other methods of portfolio allocation are more or less sensitive to the quality of the inputs considered in constructing the models and risk measures utilized in the allocation framework. The extensively used factor model proposed initially by Sharpe in 1963 has provided a robust backdrop for development of relevant, micro, macro, and context‐specific or asset specific explanatory variables to be incorporated in a statistical manner as inputs to forecasting models that can then be used to obtain risk measures upon which portfolio allocations are based. However, like all statistical models, a set of statistical assumptions accompany this factor model regression framework, one of which has recently been highlighted as seemingly nonvalidated in financial data. This is, of course, the assumption such factor models make on homoskedasticity or weak‐sense covariance stationarity of the returns processes being modeled. Such factor models, therefore, have typically failed to cope with an important and ubiquitous feature of financial assets data, which often demonstrates heteroskedasticity of the returns variances and covariances. We propose a novel generalized multifactor forecasting structure utilizing a covariance regression model, which allows us to incorporate the required heteroskedasticity effects while also admitting potential dependence in the idiosyncratic error terms. We argue that such a modeling approach allows for more explicit relationships to be interpreted between the driving factors and the conditional responses of the portfolio returns. We then compare the forecasting performances of our model with the multifactor model and the time series dynamic conditional correlation model through a currency portfolio application.

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Impact of macro-economic surprises on carry trade activity

Cited by 29 publications

References 33 publications

The Chilean peso exchange-rate carry trade and turbulence

The Chilean peso exchange-rate carry trade and turbulence

Currency Carry Trades: The Role of Macroeconomic News and Futures Market Speculation

Understanding the interplay between covariance forecasting factor models and risk‐based portfolio allocations in currency carry trades

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