Common information in carry trade risk factors

Joseph Byrne, Boulis Maher Ibrahim and Ryuta Sakemoto

Journal of International Financial Markets, Institutions and Money, 2018, vol. 52, issue C, 37-47

Abstract: 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.

Keywords: Currency carry trade; Risk factor; Principal components; Fama-MacBeth (search for similar items in EconPapers)
JEL-codes: C38 F31 G12 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443116301275
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Common Information in Carry Trade Risk Factors (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:52:y:2018:i:c:p:37-47

DOI: 10.1016/j.intfin.2017.11.003

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().