The Carry Trade on the Euro and the European Stock Market

Journal of Advanced Studies in Finance, Forthcoming

Posted: 17 Nov 2014

See all articles by Fabio Parlapiano

Fabio Parlapiano

Bank of Italy; Sapienza, University of Rome; TSBE - Tasmanian School of Business

Date Written: September 19, 2014

Abstract

We analyse the influence of carry trades involving the Euro on the Eurozone stock market, modelling returns as dependent on macroeconomic risk factors and speculative positions. The latter are measured by the net open futures positions recorded on the CME. While correlated with the standard carry-to-risk and forward discount proxies, net open positions have the considerable advantage of being directly observable. The results show that long future positions on the Euro rise contemporaneously with the positive returns in the stock market, supporting the hypothesis that speculative capital flows may inflate or stress the market price of financial assets.

Keywords: Carry trade, speculative net open future positions on the Euro, Eurozone stock market, carry-to-risk ratio.

JEL Classification: F3, F32, G15

Suggested Citation

Parlapiano, Fabio, The Carry Trade on the Euro and the European Stock Market (September 19, 2014). Journal of Advanced Studies in Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2498384

Fabio Parlapiano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

HOME PAGE: http://www.bancaditalia.it/

Sapienza, University of Rome ( email )

Via del Castro Laurenziano, 9
Rome, Rome 00161
Italy

HOME PAGE: http://https://web.uniroma1.it/dip_management/

TSBE - Tasmanian School of Business ( email )

Private Bag 84
Hobart, TAS 7001
Australia

HOME PAGE: http://www.utas.edu.au/business-and-economics/home

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