Is carry-trade a viable alternative asset class?

Das, Sougata; Kadapakkam, Palani Rajan; Tse, Yiuman

doi:10.1016/j.intfin.2012.12.004

Cited by 16 publications

(8 citation statements)

References 13 publications

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“…Each currency is equally weighted and the net investment is zero. This index serves as the reference index, which is widely used in the literature on carry‐trade strategies (Das, Kadapakkam, & Tse, 2013; Egbers & Swinkels, 2015; Laborada, Laborada, & Olmo, 2014, among others).…”

Section: Data and Empirical Resultsmentioning

confidence: 99%

The role of asymmetry and dynamics in carry trade and general financial markets

Huang

2020

The Financial Review

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This study investigates asymmetric dependence and its dynamics across returns to carry trades, stocks, and bonds using a copula‐based model. We show evidence for a significant increase in carry trade‐stock dependence and substantially negative carry trade‐bond and stock‐bond comovements since the 2007–2008 global financial crisis. We also assess the out‐of‐sample predictability of dependence in the context of asset‐allocation strategies, and find that risk‐averse investors obtain significant economic values by incorporating asymmetry and dynamics into dependence timing, particularly in the 2007–2008 crisis. These findings provide new implications for asset‐allocation strategies and risk management during turbulent market phases.

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Section: Data and Empirical Resultsmentioning

confidence: 99%

The role of asymmetry and dynamics in carry trade and general financial markets

Huang

2020

The Financial Review

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“…The S&P 500 index is the most active stock index worldwide, both in mutual funds and futures contracts. Examining commodities futures and currencies futures in asset allocations, respectively, Gorton and Rouwenhorst () and Das, Kadapakkam and Tse () represent the market by the U.S. index. Nevertheless, the current asset pricing results concerning downside risk may be specifically applied to the investors who use the U.S. index as their benchmark portfolio.…”

Section: Data and Related Researchmentioning

confidence: 99%

Asymmetric Volatility, Skewness, and Downside Risk in Different Asset Classes: Evidence from Futures Markets

Tse

2016

The Financial Review

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This study examines the cross‐sectional variation of futures returns from different asset classes. The monthly returns are positively correlated with downside risk and negatively correlated with coskewness. The asymmetric volatility effect generates negatively skewed returns. Assets with high coskewness and low downside betas provide hedges against market downside risk and offer low returns. The high returns offered by assets with low coskewness and high downside betas are a risk premium for bearing downside risk. The asset pricing model that incorporates downside risk partially explains the futures returns. The results indicate a unified risk perspective to jointly price different asset classes.

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“…Das et al (2013) Orlov (2016) compares liquidity in the stock market with that in the exchange rate market and shows that the latter is the dominant factor in determining carry returns. Although these studies highlight the pricing relevance to the cross-section of currency portfolios of specific types of information, the common component across these types has not been properly examined.…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Common Information in Carry Trade Risk Factors

Byrne

Ibrahim²,

Sakemoto

2016

SSRN Journal

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Carry returns have been widely observed in the FX market. This study exploits the common information embedded in several factors previously identified as relevant to carry trade returns. We find that the extracted common factor successfully models the time series and cross-sectional characteristics of carry returns. Empirical evidence is presented that the common factor produces smaller pricing errors than other well known factors, such as innovations of exchange rate volatility and the downside stock market excess return. Our results also suggest that stock market risk is somewhat segmented from FX market risk. JEL Classification Codes: C38, F31, G12, G15

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Is carry-trade a viable alternative asset class?

Cited by 16 publications

References 13 publications

The role of asymmetry and dynamics in carry trade and general financial markets

The role of asymmetry and dynamics in carry trade and general financial markets

Asymmetric Volatility, Skewness, and Downside Risk in Different Asset Classes: Evidence from Futures Markets

Common Information in Carry Trade Risk Factors

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