May, 2019
Currency carry trades and the conditional factor model
International Review of Financial Analysis
- Volume
- 63
- Number
- First page
- 198
- Last page
- 208
- Language
- English
- Publishing type
- Research paper (scientific journal)
- DOI
- 10.1016/j.irfa.2019.03.007
© 2019 Elsevier Inc. This study employs a conditional factor model in order to investigate the time-varying profitability of currency carry trades. To that end, I estimate conditional alphas and betas on the popular dollar and carry factors through the use of a nonparametric approach. The empirical results illustrate that the alphas and betas vary over time. Furthermore, I find that the alpha of a high interest rate currency portfolio increases in a trough in a business cycle and in a state of high market uncertainty. However, the beta on the dollar factor decreases in these market conditions, suggesting that investors reduce the foreign currency risk exposure.
- Link information
- ID information
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- DOI : 10.1016/j.irfa.2019.03.007
- ISSN : 1057-5219
- ORCID - Put Code : 58097295
- SCOPUS ID : 85064523851