The Carry Trade on the Euro and the European Stock Market
Journal of Advanced Studies in Finance, Forthcoming
Posted: 17 Nov 2014
Date Written: September 19, 2014
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: Suggested Citation