Carry trade and momentum in currency markets

Craig Burnside; Martin Eichenbaum; Sergio Rebelo

doi:10.1146/annurev-financial-102710-144913

Carry trade and momentum in currency markets

Craig Burnside^*, Martin Eichenbaum, Sergio Rebelo

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

97 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 language	English (US)
Pages (from-to)	511-535
Number of pages	25
Journal	Annual Review of Financial Economics
Volume	3
DOIs	https://doi.org/10.1146/annurev-financial-102710-144913
State	Published - 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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10.1146/annurev-financial-102710-144913

Cite this

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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.",

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AB - 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.

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KW - peso problem

KW - price pressure

KW - rare disaster

KW - uncovered interest parity

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VL - 3

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JO - Annual Review of Financial Economics

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ER -

Carry trade and momentum in currency markets

Abstract

Keywords

ASJC Scopus subject areas

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