Predictability of currency carry trades and asset pricing implications

• 成果类型: Article
• 署名作者: Bakshi, Gurdip; Panayotov, George
• 署名单位: University System of Maryland; University of Maryland College Park; Hong Kong University of Science & Technology
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.04.010
• 发表日期: 2013
• 页码: 139-163
• 关键词: Currency carry trades; predictability; Commodity returns; Currency volatility; liquidity; Predictability-based decision rule; Currency-related risk factors

摘要

This paper studies the time series predictability of currency carry trades, constructed by selecting currencies to be bought or sold against the US dollar, based on forward discounts. Changes in a commodity index, currency volatility and, to a lesser extent, a measure of liquidity predict in-sample the payoffs of dynamically re-balanced carry trades, as evidenced by individual and joint p-values in monthly predictive regressions at horizons up to six months. Predictability is further supported through out-of-sample metrics, and a predictability-based decision rule produces sizable improvements in the Sharpe ratios and skewness profile of carry trade payoffs. Our evidence also indicates that predictability can be traced to the long legs of the carry trades and their currency components. We test the theoretical restrictions that an asset pricing model, with average currency returns and the mimicking portfolio for the innovations in currency volatility as risk factors, imposes on the coefficients in predictive regressions. (c) 2013 Elsevier B.V. All rights reserved.