Abstract

http://ssrn.com/abstract=2298565
 
 

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Carry


Ralph S. J. Koijen


London Business School - Department of Finance; Centre for Economic Policy Research (CEPR)

Tobias J. Moskowitz


University of Chicago - Booth School of Business; AQR Capital; National Bureau of Economic Research (NBER)

Lasse Heje Pedersen


New York University (NYU) - Department of Finance; Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR)

Evert B. Vrugt


VU University Amsterdam, PGO-IM

August 4, 2015

Fama-Miller Working Paper

Abstract:     
We broaden and apply the concept of carry, which has been studied almost exclusively in currency markets, to any asset. A security's expected return can be decomposed into its "carry" -- an ex-ante and model-free characteristic -- and its expected price appreciation. We find that carry predicts returns cross-sectionally and in time series for a host of different asset classes including global equities, global bonds, commodities, US Treasuries, credit, and options. We show that carry is not explained by other known predictors of returns, but can capture several known return predictors from different asset classes, providing a unifying framework for return predictability. Exploring both the common and unique variation of carry in different asset classes, we reject a generalized version of uncovered interest parity and the expectations hypothesis in favor of models with varying risk premia. We also test several asset pricing models and theories offered for the currency carry premium. We find carry strategies are commonly exposed to global recession, liquidity, and volatility risks, though none fully explain carry's premium.

Number of Pages in PDF File: 70

Keywords: Carry Trade, Stocks, Bonds, Currencies, Commodities, Corporate Bonds, Options, Global Recessions

JEL Classification: E3, F3, G1


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Date posted: July 26, 2013  

Suggested Citation

Koijen, Ralph S. J. and Moskowitz, Tobias J. and Pedersen, Lasse Heje and Vrugt, Evert B., Carry (August 4, 2015). Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2298565 or http://dx.doi.org/10.2139/ssrn.2298565

Contact Information

Ralph S. J. Koijen (Contact Author)
London Business School - Department of Finance ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Tobias J. Moskowitz
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)

Chicago Booth School of Business Logo

AQR Capital ( email )
Greenwich, CT
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Lasse Heje Pedersen
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Copenhagen Business School ( email )
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
AQR Capital Management, LLC ( email )
Greenwich, CT
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Evert B. Vrugt
VU University Amsterdam, PGO-IM ( email )
De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands
Feedback to SSRN


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