10 Pages Posted: 23 Feb 2016
Date Written: 2016
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: 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