Concealed Carry

83 Pages Posted: 10 Feb 2021 Last revised: 25 Jul 2022

See all articles by Spencer Andrews

Spencer Andrews

University of North Carolina (UNC) at Chapel Hill - Finance Area

Ric Colacito

University of North Carolina Kenan-Flagler Business School; NBER

Mariano (Max) Massimiliano Croce

Finance Department, Bocconi University; Centre for Economic Policy Research (CEPR)

Federico Gavazzoni

BI - Norwegian Business School

Date Written: December 5, 2020

Abstract

The slope carry takes a long (short) position in the long-term bonds of countries with steeper (flatter) yield curves. The traditional carry takes a long (short) position in countries with high (low) short-term rates. We document that: (i) the slope carry return is slightly negative (strongly positive) in the pre (post) 2008 period, whereas it is concealed over longer samples; (ii) the traditional carry return is lower post-2008; and (iii) expected global growth and inflation declined post-2008. We connect these findings through an equilibrium model in which countries feature heterogeneous exposure to news shocks about global output and global inflation.

Keywords: Currency Risk, Carry Trade, Inflation Risk

JEL Classification: F31, G12

Suggested Citation

Andrews, Spencer and Colacito, Riccardo and Croce, Mariano Massimiliano and Gavazzoni, Federico, Concealed Carry (December 5, 2020). Available at SSRN: https://ssrn.com/abstract=3743205 or http://dx.doi.org/10.2139/ssrn.3743205

Spencer Andrews

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
3026502645 (Phone)

HOME PAGE: http://tarheels.live/spencerandrews/

Riccardo Colacito

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://drric.web.unc.edu/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mariano Massimiliano Croce

Finance Department, Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/view/mmcroce/home

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Federico Gavazzoni (Contact Author)

BI - Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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