Econometric analysis of currency carry trade

Yu Jen Wang, Huimin Chung, Bruce Mizrach

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-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 languageEnglish
Title of host publicationHandbook of Financial Econometrics and Statistics
PublisherSpringer New York
Pages1877-1890
Number of pages14
ISBN (Electronic)9781461477501
ISBN (Print)9781461477495
DOIs
StatePublished - 1 Jan 2015

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