Abstract

http://ssrn.com/abstract=2298565
 
 

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Carry


Ralph S. J. Koijen


London Business School - Department of Finance; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz


University of Chicago - Booth School of Business

Lasse Heje Pedersen


New York University (NYU); Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Evert B. Vrugt


VU University Amsterdam, PGO-IM

November 7, 2013

Fama-Miller Working Paper

Abstract:     
Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the cross section and time series for a variety of different asset classes including global equities, global bonds, commodities, US Treasuries, credit, and options. This predictability rejects a generalized version of the uncovered interest rate parity and expectations hypothesis and in favor of models with varying risk premia. Our global carry factor across markets delivers strong average returns and, while it is exposed to recession, liquidity, and volatility risks, its performance presents a challenge to asset pricing models.

Number of Pages in PDF File: 63

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

JEL Classification: E3, F3, G1

working papers series


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Date posted: July 26, 2013 ; Last revised: July 28, 2014

Suggested Citation

Koijen, Ralph S. J. and Moskowitz, Tobias J. and Pedersen, Lasse Heje and Vrugt, Evert B., Carry (November 7, 2013). 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
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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)
Lasse Heje Pedersen
New York University (NYU) ( email )
Stern School of Business, Dept. of Finance
44 West 4th St, Suite 9-190
New York, NY 10003-711
United States
HOME PAGE: http://pages.stern.nyu.edu/~lpederse/
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
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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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References:  59
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