Currency regimes and the carry trade
Journal of Financial and Quantitative Analysis
Cambridge University Press
MetadataShow full item record
Accominotti, O., Cen, J., Chambers, D., & Marsh, I. (2019). Currency regimes and the carry trade. Journal of Financial and Quantitative Analysis, 54 (5), 2233-2260. https://doi.org/10.1017/S002210901900019X
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.
We are indebted to Cambridge University’s Centre for Endowment Asset Management (CEAM), Cambridge Endowment for Research in Finance (CERF), and London School of Economics’ Research Infrastructure and Investment Funds (RIIF) for financial support.
External DOI: https://doi.org/10.1017/S002210901900019X
This record's URL: https://www.repository.cam.ac.uk/handle/1810/290270