Good Carry, Bad Carry

Geert Bekaert and George Panayotov

No 13463, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We distinguish between †good†and †bad†carry trades constructed from G-10 currencies. The good trades exhibit higher Sharpe ratios and sometimes positive return skewness, in contrast to the bad trades that have both substantially lower Sharpe ratios and highly negative return skewness. Surprisingly, good trades do not involve the most typical carry currencies like the Australian dollar and Japanese yen. The distinction between good and bad carry trades significantly alters our understanding of currency carry trade returns, and invalidates, for example, explanations invoking return skewness and crash risk.

Keywords: Currency carry trade; Predictability; Currency risk factors (search for similar items in EconPapers)
JEL-codes: C23 C53 G11 (search for similar items in EconPapers)
Date: 2019-01
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Good Carry, Bad Carry (2020)
Working Paper: Good Carry, Bad Carry (2019)
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