Currency Carry Trades

Travis John Berge (), Oscar Jorda () and Alan M. Taylor ()

No 16491, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A wave of recent research has studied the predictability of foreign currency returns. A wide variety of forecasting structures have been proposed, including signals such as carry, value, momentum, and the forward curve. Some of these have been explored individually, and others have been used in combination. In this paper we use new econometric tools for binary classification problems to evaluate the merits of a general model encompassing all these signals. We find very strong evidence of forecastability using the full set of signals, both in sample and out-of-sample. This holds true for both an unweighted directional forecast and one weighted by returns. Our preferred model generates economically meaningful returns on a portfolio of nine major currencies versus the U.S. dollar, with favorable Sharpe and skewness characteristics. We also find no relationship between our returns and a conventional set of so-called risk factors.

JEL-codes: C44 F31 F37 G14 G15 G17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-for, nep-ifn and nep-mon
Date: 2010-10
Note: AP IFM
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Published as Travis Berge, Òscar Jordà, Alan M. Taylor. "Currency Carry Trades," in Richard Clarida and Francesco Giavazzi, organizers, "NBER International Seminar on Macroeconomics 2010" University of Chicago Press (2011)

Downloads: (external link)
http://www.nber.org/papers/w16491.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Journal Article: Currency Carry Trades (2011)
Chapter: Currency Carry Trades (2010)
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: http://EconPapers.repec.org/RePEc:nbr:nberwo:16491

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w16491
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().