Currency carry trade: The decline in performance after the 2008 Global Financial Crisis

Zhenzhen Fan, Alexander Paseka, Zhen Qi and Qi Zhang

Journal of International Financial Markets, Institutions and Money, 2022, vol. 76, issue C

Abstract: This paper investigates the decline in performance of the carry strategy after the Global Financial Crisis (GFC) from a risk-based asset pricing perspective. We put forward and test four hypothesis that attribute the performance deterioration to under-diversification, a decline in systematic risk, downside risk, or crash risk, respectively. Overall, we attribute the decline in carry performance can be largely attributed to the disappearance of the downside risk in the post-crisis carry trade portfolio, rather than under-diversification, changing exposure to known risk factors, or decreased crash risks in currencies.

Keywords: Efficient carry; Currency anomalies; Global Financial Crisis; Crash risk; Option hedging (search for similar items in EconPapers)
JEL-codes: F31 G11 G12 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:76:y:2022:i:c:s1042443121001670

DOI: 10.1016/j.intfin.2021.101460

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