Leveraged Carry Trade Portfolios

Zsolt Darvas

No 822, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: Studying all possible pairs of eleven major currencies and eleven portfolios in 1976-2008 we show that, when there is no leverage, carry trade is significantly profitable for most currency pairs and portfolios. Positive returns do not diminish in time providing a strong case against the hypothesis of uncovered interest rate parity. We explain these findings with the leveraged nature of carry trade: leverage may increase profitability but it materially increases downside risk. We argue that market inefficiency is related to the level of leverage.

Keywords: Bootstrap; Currency market; Diversification; Leverage; Uncovered interest rate parity (search for similar items in EconPapers)
JEL-codes: C32 F31 G11 G15 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2008-10
New Economics Papers: this item is included in nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://econ.core.hu/file/download/mtdp/MTDP0822.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to econ.core.hu:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
Journal Article: Leveraged carry trade portfolios (2009)
Working Paper: Leveraged carry trade portfolios (2008)
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:has:discpr:0822

Access Statistics for this paper

More papers in CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies Contact information at EDIRC.
Bibliographic data for series maintained by Nora Horvath ( this e-mail address is bad, please contact ).