Empirical Evidence on the Currency Carry Trade, 1900-2012

38 Pages Posted: 15 Dec 2014 Last revised: 19 Jul 2016

See all articles by Nikolay Doskov

Nikolay Doskov

Norges Bank Investment Management (NBIM)

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Asset Management

Date Written: February 1, 2015


Most of the currency literature investigates the risk and return characteristics of the currency carry trade after the collapse of the Bretton Woods system. In order to gauge the long-term currency carry premium, we extend the sample to 20 currencies over the period 1900 to 2012. We find modest Sharpe ratios in the range of 0.2 to 0.4 for carry trading over this period. This is markedly lower than the Sharpe ratios above 0.6 reported for recent sample periods. We document that carry trading occasionally incurs substantial losses, which fits well with risk-based explanations for deviations from uncovered interest parity. We find that large carry trading losses do not necessarily coincide with large losses in global equity markets. Our results help to better understand the source and nature of excess returns on the carry trade.

Keywords: Currency carry trade, Currency crisis, Foreign exchange, Forward discount

JEL Classification: E42, F31, G15, N20

Suggested Citation

Doskov, Nikolay and Swinkels, Laurens, Empirical Evidence on the Currency Carry Trade, 1900-2012 (February 1, 2015). Journal of International Money and Finance 51, pp. 370-389, 2015, Available at SSRN: https://ssrn.com/abstract=2060207

Nikolay Doskov

Norges Bank Investment Management (NBIM) ( email )

Bankplassen 2
P.O. Box 1179 Sentrum
Oslo, NO-0107

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

Robeco Asset Management ( email )

Rotterdam, 3000
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

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