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The Effect of Political Risk on Currency Carry Trades

10 Pages Posted: 23 Feb 2016  

Vitaly Orlov

University of St. Gallen

Nebojsa Dimic

University of Vaasa, Department of Accounting and Finance, Students

Vanja Piljak

University of Vaasa - Department of Accounting and Finance

Date Written: 2016

Abstract

This paper explores the risk profile of individual currency carry trades. Findings indicate that carry trade profitability depends on a country’s political risk, supporting the risk-based view on forward bias. Political risk effect originates as a component of government actions and is more pronounced in emerging economies and in countries with high interest differentials.

Keywords: Political Risk, Carry Trades, Forward Premium Puzzle

JEL Classification: F31, G15

Suggested Citation

Orlov, Vitaly and Dimic, Nebojsa and Piljak, Vanja, The Effect of Political Risk on Currency Carry Trades (2016). Available at SSRN: https://ssrn.com/abstract=2735841 or http://dx.doi.org/10.2139/ssrn.2735841

Vitaly Orlov (Contact Author)

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Nebojsa Dimic

University of Vaasa, Department of Accounting and Finance, Students ( email )

Finland

Vanja Piljak

University of Vaasa - Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland

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