Econometric analysis of currency carry trade

Yu Jen Wang; Huimin Chung; Bruce Mizrach

doi:10.1007/978-1-4614-7750-1_69

Econometric analysis of currency carry trade

Yu Jen Wang, Huimin Chung, Bruce Mizrach

Department of Information Management and Finance

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

Abstract

The carry trade is a popular strategy in the currency markets whereby investors fund positions in high interest rate currencies by selling low interest rate currencies to earn the interest rate differential. In this article, we first provide an overview of the risk and return profile of currency carry trade; second, we introduce two popular models, the regime-switch model and the logistic smooth transition regression model, to analyze carry trade returns because the carry trade returns are highly regime dependent. Finally, an empirical example is illustrated.

Original language	English
Title of host publication	Handbook of Financial Econometrics and Statistics
Publisher	Springer New York
Pages	1877-1890
Number of pages	14
ISBN (Electronic)	9781461477501
ISBN (Print)	9781461477495
DOIs	https://doi.org/10.1007/978-1-4614-7750-1_69
State	Published - 1 Jan 2015

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Econometric analysis of currency carry trade

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