A Proposal to Boost the Profitability of Carry Trade

Imad Moosa () and Kelly Burns ()
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Imad Moosa: School of Economics, Finance and Marketing, RMIT University, 445 Swanston Street, Melbourne, Victoria 3000, Australia
Kelly Burns: School of Economics, Finance and Marketing, RMIT University, 445 Swanston Street, Melbourne, Victoria 3000, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2013, vol. 16, issue 04, 1-9

Abstract: It is demonstrated that carry trade can be made more profitable by taking into account the drift factor in the random walk behavior of the underlying exchange rate if it is significant. By using four currency combinations we find the drift factor to be significant at horizons longer than one month and that if it is taken into account, the outcome of carry trade improves in terms of risk-adjusted return. The results and conclusions are consistent whether the exercise is conducted within-sample or out of-sample.

Keywords: Carry trade; random walk; risk-adjusted return (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219091513500252

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