Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy?

Ogruk, G. (2014). Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy?. International Journal of Economics and Financial Issues, 4(4), 909

Posted: 6 Nov 2017 Last revised: 13 Nov 2017

Date Written: October 4, 2014

Abstract

This paper evaluates the performance of carry trade strategies with implied Taylor rule interest rate differentials and compares the performance statistics of them over the naive carry trade strategy with actual interest rates. Carry trade, a currency speculation strategy, between high-interest rate and low-interest rate currencies generates high payoff on average and has a possibility of crash risk. I argue that the crash risk is reduced with implied Taylor rule interest rate differentials as a trading strategy in Yen and Franc trades for the whole sample period. During the recent financial crisis, the carry trading strategies with Taylor rule perform best in terms of mean returns, risk adjusted returns and downside risk.

Keywords: Carry Trade, Taylor Rule Fundamentals

JEL Classification: E32, E37, E43, F31, F37, G15

Suggested Citation

Ogruk-Maz, Gokcen, Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? (October 4, 2014). Ogruk, G. (2014). Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy?. International Journal of Economics and Financial Issues, 4(4), 909. Available at SSRN: https://ssrn.com/abstract=3065228

Gokcen Ogruk-Maz (Contact Author)

Texas Wesleyan University ( email )

1201 Wesleyan St
Fort Worth, TX 76105
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
153
PlumX Metrics