Leveraged Carry Trade Portfolios

Arbeitspapier

Studying all possible pairs of eleven major currencies and eleven portfolios in 1976-2008 we show that, when there is no leverage, carry trade is significantly profitable for most currency pairs and portfolios. Positive returns do not diminish in time providing a strong case against the hypothesis of uncovered interest rate parity. We explain these findings with the leveraged nature of carry trade: leverage may increase profitability but it materially increases downside risk. We argue that market inefficiency is related to the level of leverage.

Object Details

• ISBN: 978-963-9796-40-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IEHAS Discussion Papers ; No. MT-DP - 2008/22

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Foreign Exchange ; Portfolio Choice; Investment Decisions ; International Financial Markets
• Subject: Bootstrap ; Currency market ; Diversification ; Leverage ; Uncovered interest rate parity ; Devisenmarkt ; Währungsspekulation ; Devisenmarkt ; Zinsparität ; Portfolio-Management ; Bootstrap-Verfahren ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Darvas, Zsolt
• Event: Veröffentlichung
• (who): Hungarian Academy of Sciences, Institute of Economics
• (where): Budapest
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/108145
• Last update: 10.03.2025, 11:43 AM CET