Carry trades, momentum trading and the forward premium anomaly
Richard T. Baillie and
Sanders Chang ()
Journal of Financial Markets, 2011, vol. 14, issue 3, 441-464
This paper examines the role of carry trade and momentum trading strategies and their implications for the magnitude of the forward premium anomaly. The formal analysis uses a logistic smooth transition regression, with transition variables related to the different currency trading strategies. The hypothesis of uncovered interest parity is found to hold in an upper regime where carry trades appear profitable on the basis of interest differentials and where exchange rate volatility is high.
Keywords: Currency; trading; strategies; Uncovered; interest; parity; Forward; premium; anomaly; Nonlinearity; LSTR; models (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:14:y:2011:i:3:p:441-464
Access Statistics for this article
Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam
More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().