From carry trades to curvy trades

Crash-Neutral Currency Carry Trades

Currency carry trades exploiting violations of uncovered interest rate parity in G10 currencies deliver significant excess returns with annualized Sharpe equal to or greater than those of equity market factors (19902012). Using data on out-of-the-money foreign exchange options, I compute returns to crash-hedged portfolios and demonstrate that the high returns to carry trades are not due to peso...

5 Carry Trades and Currency Crashes

This paper studies crash risk of currencies for funding‐constrained speculators in an attempt to shed new light on the major currency puzzles. Our starting point is the currency carry trade, which consists of selling low interest rate currencies—“funding currencies”—and investing in high interest rate currencies—“investment currencies.” While the uncovered interest rate parity (UIP) hypothesize...

Carry Trades, Momentum Trading and the Forward Premium Anomaly

This paper examines the role of carry trade and momentum trading strategies and their implications for the magnitude of the forward premium anomaly. The formal analysis uses a logistic smooth transition regression, with transition variables related to the di¤erent currency trading strategies. The hypothesis of uncovered interest parity is found to hold in an upper regime where carry trades appe...

4-homogeneous Latin Trades

Rich Trades, Scarce Capabilities:

In the last decade of the sixteenth century, the Dutch republic underwent a dramatic economic transformation that laid the foundation of the country’s Golden Age. At the heart of this process was the rise of the ‘rich trades’, the network by which Dutch shipping came to dominate the lucrative trade routes to the East Indies, the Americas and the Levant (Israel (1990)). The rise of the ‘rich tra...