30 Pages Posted: 19 Oct 2016
Date Written: October 4, 2016
This paper investigates the relation between monetary conditions and the excess returns arising from an investment strategy that consists of borrowing low-interest rate currencies and investing in currencies with high interest rates, so-called "carry trade". The results indicate that carry trade average excess return, Sharpe ratio and 5% quantile differ substantially across expansive and restrictive conventional monetary policy before the onset of the recent financial crisis. By contrast, the considered parameters are not affected by unconventional monetary policy during the financial crisis.
Keywords: carry trade, volatility, monetary conditions
JEL Classification: F31, G15, E52
Suggested Citation: Suggested Citation
Falconio, Andrea, Carry Trades and Monetary Conditions (October 4, 2016). ECB Working Paper No. 1968. Available at SSRN: https://ssrn.com/abstract=2854134