The impact of jumps on carry trade returns

• 成果类型: Article
• 署名作者: Lee, Suzanne S.; Wang, Minho
• 署名单位: University System of Georgia; Georgia Institute of Technology; State University System of Florida; Florida International University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2018.08.006
• 发表日期: 2019
• 页码: 433-455
• 关键词: Jump beta; Jump modified carry trade; Foreign exchange rate; Carry trade

摘要

This paper investigates how jump risks are priced in currency markets. We find that currencies whose changes are more sensitive to negative market jumps provide significantly higher expected returns. The positive risk premium constitutes compensation for the extreme losses during periods of market turmoil. Using the empirical findings, we propose a jump modified carry trade strategy, which has approximately two-percentage-point (per annum) higher returns than the regular carry trade strategy. These findings result from the fact that negative jump betas are significantly related to the riskiness of currencies and business conditions. (C) 2018 Elsevier B.V. All rights reserved.