Technology Diffusion and Currency Carry Trades

53 Pages Posted: 14 Dec 2015 Last revised: 6 May 2016

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School; University of Warwick

Date Written: May 5, 2016


The paper identifies a unique dimension of currency carry trades that it is related to the intensity of technology transition across countries. Particularly, I show that technology diffusion is a fundamental determinant of currency premia and it is priced in the cross-section of currency excess returns. Technology spillovers are measured based on the R&D concentration as well as the inflows of foreign direct investment (FDI) that are associated with domestic patents owned by foreign investors. Intuitively, carry traders require a risk premium for financing risky innovation in countries with high patent related FDI inflows. Similarly, a positive risk premium is obtained from countries with high concentration of technology transition as investment currencies are subject to the R&D of the funding countries.

Keywords: Technology Adaption, Comparative Advantage, Currency Risk premium

JEL Classification: F31; G11; O32; O34

Suggested Citation

Filippou, Ilias, Technology Diffusion and Currency Carry Trades (May 5, 2016). Available at SSRN: or

Ilias Filippou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

University of Warwick ( email )

Scarman Road
West Midlands, CV4 7AL
United Kingdom
+44(0)2476522393 (Phone)


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