EconPapers    
Economics at your fingertips  
 

The analysis of volatility transmission mechanism among carry trade currencies

Ekin Tokat, Atılım Murat and Hakkı Arda Tokat
Additional contact information
Ekin Tokat: TOBB Ekonomi ve Teknoloji Universitesi
Atılım Murat: TOBB Ekonomi ve Teknoloji Universitesi
Hakkı Arda Tokat: TOBB Ekonomi ve Teknoloji Universitesi

Iktisat Isletme ve Finans, 2014, vol. 29, issue 335, 23-44

Abstract: Investors take the advantage of disequilibrium in spot and forward exchange markets by investing in higher yield currency on a covered basis. An alternative of covered interest arbitrage is uncovered interest arbitrage (UIA) in which investors choose to remain uncovered accepting the currency risk. The “yen carry trade” is known as a Longstanding application of UIA. Owing to Japanese low interest rates, yen carry trade has been a highly profitable strategy which involves borrowing in yen to buy higher yielding assets. Employing multivariate GARCH modeling, we examine the volatility transmission mechanism between the exchange rates involved in “yen carry trade”. Due to high impact of Lehman Brothers’ collapse on world financial markets, we rather do the analysis for both before and after the default. Results reveal that interactions between the exchange rates increase considerably in response to negative market shocks. Our findings present new cross-hedging opportunities for investors.

Keywords: Yen Carry Trade; Volatility Spillover; Multivariate GARCH; Asymmetric Shock. (search for similar items in EconPapers)
JEL-codes: G19 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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: https://EconPapers.repec.org/RePEc:iif:iifjrn:v:29:y:2014:i:335:p:23-44

Ordering information: This journal article can be ordered from
http://www.iif.com.t ... ew/iif.2014.335.3846

Access Statistics for this article

Iktisat Isletme ve Finans is currently edited by Ali Bilge

More articles in Iktisat Isletme ve Finans from Bilgesel Yayincilik
Series data maintained by Ali Bilge ().

 
Page updated 2017-09-29
Handle: RePEc:iif:iifjrn:v:29:y:2014:i:335:p:23-44