Dollar Carry Timing

74 Pages Posted:

See all articles by Thiago de Oliveira Souza

Thiago de Oliveira Souza

University of Southern Denmark; Danish Finance Institute

Date Written: October 21, 2020

Abstract

Dollar carry trade risk premiums - unlike dollar-neutral or foreign exchange risk premiums - are positively correlated with firm-level dispersions in investment, profitability, and book-to-market in addition to the Treasury-bill rate, long term bond yield, term spread, and default spread. Several forecasting models pin down the few periods responsible for the entire premium, based on these proxies for the latent risk and price of risk states in the U.S. (and its business cycle). This predictability is also statistically and economically significant out of sample: It generates Sharpe ratios as large as 1.37 (compared to 0.44 unconditionally), for example.

Keywords: Carry trade, risk premium, business cycle, microeconomic dispersion, foreign exchange.

JEL Classification: G11, G12, G15, F31, E32, D25.

Suggested Citation

de Oliveira Souza, Thiago, Dollar Carry Timing (October 21, 2020). Available at SSRN: https://ssrn.com/abstract=

Thiago De Oliveira Souza (Contact Author)

University of Southern Denmark ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Danish Finance Institute ( email )

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
8
PlumX Metrics