Unexploited currency carry trade profit opportunity

Sangwon Suh

Journal of International Financial Markets, Institutions and Money, 2019, vol. 58, issue C, 236-254

Abstract: In this paper, we find a significant amount of profit opportunities unexploited by conventional currency carry trade strategies. To find the unexploited profit opportunities, we propose a new currency carry trade strategy to exploit differential predictive capacity of forward discounts on future currency excess returns. We also find that emerging market currencies provide relatively large profit opportunities. While both strategies show decreasing carry trade profits as FX markets get volatile, the relative outperformance of the new carry trade strategy tends to be found in stable periods but disappears in volatile periods. The superiority of the new method relative to the conventional one is robust to various specification changes.

Keywords: Uncovered interest parity; Currency carry trade; Profit opportunity; Sorting; Filtered sorting (search for similar items in EconPapers)
JEL-codes: F31 G11 (search for similar items in EconPapers)
Date: 2019
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/S1042443118300064
Full text for ScienceDirect subscribers only

Related works:
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:58:y:2019:i:c:p:236-254

DOI: 10.1016/j.intfin.2018.11.002

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 ().