A Statistical Analysis of Carry Trading

19 Pages Posted: 29 Jun 2017 Last revised: 25 Dec 2018

See all articles by Siro Fritzmann

Siro Fritzmann

Zurich University of Applied Sciences

David Jaggi

Zurich University of Applied Sciences

Joerg Osterrieder

Zurich University of Applied Sciences

Date Written: June 9, 2017

Abstract

Carry trading is one of the most popular currency trading strategies. The aim of this paper is to apply and analyze the approach described in Baz et al. (2015) by utilizing the G10 currency cross rates and the 3-month Libor rates. The carry trading strategy is well documented and widely used by several types of market participants. In a first step, the strategy is tested with generated data based on the CHF/USD currency pair and the carry signal is being analyzed. In a second step, the strategy was applied to a basket of 45 currency pairs consisting of all the possible combinations between the G10 currencies. The outcome shows that carry trading can be protable if traded under the right market conditions, which are stable interest rates and an appreciation of the traded currency cross rate. The Deutsche Bank Currency Harvest Index, which is a similar implementation of a carry trading strategy outbids the approach by Baz et al. (2015) for the analyzed time period.

Keywords: carry, carry trading, currency markets, exchange rates, currency speculation

JEL Classification: F31, G15, G00

Suggested Citation

Fritzmann, Siro and Jaggi, David and Osterrieder, Joerg, A Statistical Analysis of Carry Trading (June 9, 2017). Available at SSRN: https://ssrn.com/abstract=2993902 or http://dx.doi.org/10.2139/ssrn.2993902

Siro Fritzmann

Zurich University of Applied Sciences ( email )

Institut fuer Angewandte Medienwissenschaft
Zur Kesselschmiede 35
Winterthur, CH 8401
Switzerland

David Jaggi

Zurich University of Applied Sciences ( email )

Institut fuer Angewandte Medienwissenschaft
Zur Kesselschmiede 35
Winterthur, CH 8401
Switzerland

Joerg Osterrieder (Contact Author)

Zurich University of Applied Sciences ( email )

Economics and Finance
Technikumstrasse 9
Winterthur, 8401
Switzerland

HOME PAGE: http://www.zhaw.ch

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