Carry trade and momentum in currency markets

Craig Burnside*, Martin Eichenbaum, Sergio Rebelo

*Corresponding author for this work

Research output: Contribution to journalArticle

51 Scopus citations

Abstract

We examine the empirical properties of the payoffs to two popular currency speculation strategies: the carry trade and momentum. We review three possible explanations for the apparent profitability of these strategies. The first is that speculators are being compensated for bearing risk. The second is that these strategies are vulnerable to rare disasters or peso problems. The third is that there is price pressure in currency markets.

Original languageEnglish (US)
Pages (from-to)511-535
Number of pages25
JournalAnnual Review of Financial Economics
Volume3
DOIs
StatePublished - Nov 16 2011

Keywords

  • currency speculation
  • exchange rates
  • peso problem
  • price pressure
  • rare disaster
  • uncovered interest parity

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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