Dobrynskaya, Victoria (2014) Downside market risk of carry trades. Review of Finance, 18 (5). pp. 1885-1913. ISSN 1572-3097
Full text not available from this repository.Abstract
I propose a new factor - the global downside market factor - to explain high returns to carry trades. I show that carry trades have high downside market risk, i.e. they crash systematically in the worst states of the world when the global stock market plunges or when a disaster occurs. The downside market factor explains the returns to currency portfolios sorted by the forward discount better than other factors previously proposed in the literature. GMM estimates of the downside beta premium are similar in the currency and stock markets, statistically significant and close to their theoretical value. High returns to carry trades are fair compensation for their high downside market risk.
| Item Type: | Article |
|---|---|
| Official URL: | http://rof.oxfordjournals.org/ |
| Additional Information: | © 2014 Oxford University Press |
| Divisions: | LSE |
| Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies |
| Date Deposited: | 28 Aug 2014 13:37 |
| Last Modified: | 16 May 2024 01:54 |
| Projects: | 10-01-0069 |
| Funders: | National Research University Higher School of Economics |
| URI: | http://eprints.lse.ac.uk/id/eprint/59178 |
Actions (login required)
 |
View Item |
