Currency Carry Trades: The Role of Macroeconomic News and Futures Market Speculation

The Journal of Futures Markets, Vol. 36, No. 11, 1076–1107 (2016)

45 Pages Posted: 5 Mar 2018

See all articles by Suk-Joong Kim

Suk-Joong Kim

The University of Sydney Business School

Date Written: 2016

Abstract

We investigate carry trade opportunities in major currencies against the US Dollar over the period 2 Jan 1999 to 31 Dec 2012. There is evidence of significant Australian Dollar (AUD), Euro and Japanese Yen (JPY) carry trades during non-crisis periods. The AUD (JPY) was an investment (a funding) currency, and the Euro was both. However, cross currency carry trades were not present. For the AUD and JPY, we find that carry trades were more likely with low volatility and volume. Macroeconomic news that appreciate (depreciate) the AUD (the JPY) also stimulated the AUD (the JPY) carry trades. However, there is no evidence of meaningful and consistent impact of macroeconomic news on the EUR carry trades. For weekly horizon investigations, we find that net long futures positions in the AUD promoted carry trades in the AUD and JPY. However, net long positions in the JPY only managed to reduce JPY carry trade probability.

Keywords: Currency Carry Trade, Markov Regime Shifting, Macroeconomic News, Order Flow, Speculative Futures Positions

JEL Classification: E44, F31, G15

Suggested Citation

Kim, Suk-Joong, Currency Carry Trades: The Role of Macroeconomic News and Futures Market Speculation (2016). The Journal of Futures Markets, Vol. 36, No. 11, 1076–1107 (2016). Available at SSRN: https://ssrn.com/abstract=3129546

Suk-Joong Kim (Contact Author)

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+61 2 9114 0940 (Phone)
+61 2 9351 6461 (Fax)

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