Item Type |
Journal paper
|
Abstract |
We explain the currency carry trade (CT) performance using an asset pricing model in which factor loadings are regime dependent rather than constant. Empirical results show that a typical CT strategy has much higher exposure to the stock market and is mean reverting in regimes of high foreign exchange volatility. The findings are robust to various extensions. Our regime-dependent pricing model provides significantly smaller pricing errors than a traditional model. Thus, the CT performance is better explained by a time-varying systematic risk that increases in volatile markets, suggesting a partial resolution of the uncovered interest parity puzzle. |
Authors |
Christiansen, Charlotte; Ranaldo, Angelo & Söderlind, Paul |
Journal or Publication Title |
Journal of Financial and Quantitative Analysis |
Language |
English |
Subjects |
economics |
HSG Classification |
contribution to scientific community |
Refereed |
Yes |
Date |
1 August 2011 |
Publisher |
Cambridge University Press |
Place of Publication |
Cambridge |
Volume |
46 |
Number |
4 |
Page Range |
1107-1125 |
Number of Pages |
19 |
ISSN |
0022-1090 |
ISSN-Digital |
1756-6916 |
Publisher DOI |
https://doi.org/10.1017/S0022109011000263 |
Depositing User |
Prof. PhD. Paul Söderlind
|
Date Deposited |
04 Mar 2010 14:42 |
Last Modified |
20 Jul 2022 16:58 |
URI: |
https://www.alexandria.unisg.ch/publications/60624 |