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Currency regimes and the carry trade

Accominotti, Olivier, Cen, Jason, Chambers, David and Marsh, Ian W. (2019) Currency regimes and the carry trade. Journal of Financial and Quantitative Analysis, 54 (5). 2233 - 2260. ISSN 0022-1090

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Identification Number: 10.1017/S002210901900019X

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
Additional Information: © 2019 Michael G. Foster School of Business, University of Washington
Divisions: Economic History
Subjects: H Social Sciences > HG Finance
H Social Sciences > HF Commerce
Date Deposited: 11 Mar 2019 12:45
Last Modified: 26 Jan 2020 00:09
URI: http://eprints.lse.ac.uk/id/eprint/100239

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