Economics at your fingertips  


Ralph S.J. Koijen, Tobias J. Moskowitz, Lasse Heje Pedersen and Evert B. Vrugt

Journal of Financial Economics, 2018, vol. 127, issue 2, 197-225

Abstract: We apply the concept of carry, which has been studied almost exclusively in currency markets, to any asset. A security’s expected return is decomposed into its “carry,” an ex-ante and model-free characteristic, and its expected price appreciation. Carry predicts returns cross-sectionally and in time series for a host of different asset classes, including global equities, global bonds, commodities, US Treasuries, credit, and options. Carry is not explained by known predictors of returns from these asset classes, and it captures many of these predictors, providing a unifying framework for return predictability. We reject a generalized version of Uncovered Interest Parity and the Expectations Hypothesis in favor of models with varying risk premia, in which carry strategies are commonly exposed to global recession, liquidity, and volatility risks, though none fully explains carry’s premium.

Keywords: Carry trade; Predictability; Stocks; Bonds; Currencies; Commodities; Corporate Bonds; Options; Liquidity risk; Volatility risk (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
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:

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Series data maintained by Dana Niculescu ().

Page updated 2018-02-24
Handle: RePEc:eee:jfinec:v:127:y:2018:i:2:p:197-225