The effect of political risk on currency carry trades

Nebojsa Dimic, Vitaly Orlov and Vanja Piljak

Finance Research Letters, 2016, vol. 19, issue C, 75-78

Abstract: This paper explores the risk profile of individual currency carry trades. Findings indicate that carry trade profitability depends on a country's political risk, supporting the risk-based view on forward bias. Political risk effect originates as a component of government actions and is more pronounced in emerging economies and in countries with high interest differentials.

Keywords: Political risk; Carry trades; Forward premium puzzle (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:19:y:2016:i:c:p:75-78

DOI: 10.1016/j.frl.2016.06.005

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