The Experts below are selected from a list of 306 Experts worldwide ranked by ideXlab platform
Sergio Rebelo - One of the best experts on this subject based on the ideXlab platform.
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Carry trade and momentum in Currency markets
Annual Review of Financial Economics, 2011Co-Authors: Craig Burnside, Martin Eichenbaum, Sergio RebeloAbstract:We examine the empirical properties of the payoffs to two popular Currency Speculation strategies: the carry trade and momentum. We review three possible explanations for the apparent profitability of these strategies. The first is that speculators are being compensated for bearing risk. The second is that these strategies are vulnerable to rare disasters or peso problems. The third is that there is price pressure in Currency markets.
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Do Peso Problems Explain the Returns to the Carry Trade
Review of Financial Studies, 2010Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:We study the properties of the carry trade, a Currency Speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs that are on average large and uncorrelated with traditional risk factors. We argue that these payoffs reflect a peso problem. The underlying peso event features high values of the stochastic discount factor rather than very large negative payoffs.
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Do Peso Problems Explain the Returns to the Carry Trade
SSRN Electronic Journal, 2010Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:We study the properties of the carry trade, a Currency Speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs which are on average large and uncorrelated with traditional risk factors. We investigate whether these payoffs reflect a peso problem. We argue that they do. We reach this conclusion by analyzing the payoffs to the hedged carry trade, in which an investor uses Currency options to protect himself from the downside risk from large, adverse movements in exchange rates
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Do Peso Problems Explain the Returns to the Carry Trade
National Bureau of Economic Research, 2008Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:Currencies that are at a forward premium tend to depreciate. This `forward-premium puzzle' is an egregious deviation from uncovered interest parity. We document the properties of the carry trade, a Currency Speculation strategy that exploits this anomaly. This strategy consists of borrowing low-interest-rate currencies and lending high-interest-rate currencies. We first show that the carry trade yields a high Sharpe ratio that is not a compensation for risk. We then consider a hedged version of the carry trade, which protects the investor against large, adverse Currency movements. This strategy, implemented with Currency options, yields average payoffs that are statistically indistinguishable from the average payoffs to the standard carry trade. We argue that this finding implies that the peso problem cannot be a major determinant of the payoff to the carry trade.
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CARRY TRADE: THE GAINS OF DIVERSIFICATION
Journal of the European Economic Association, 2008Co-Authors: Craig Burnside, Martin Eichenbaum, Sergio RebeloAbstract:Market participants routinely take advantage of the failure of uncovered interest rate parity to speculate in Currency markets. Perhaps the most widely used Currency Speculation strategy is the carry trade. In this article we take the perspective of an individual Currency trader and document the gains to diversifying the carry trade across different currencies. We show that these gains are large. Diversification boosts the typical Sharpe ratio by over 50%.
David Chambers - One of the best experts on this subject based on the ideXlab platform.
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If you're so smart: John Maynard Keynes and Currency Speculation in the interwar years
The Journal of Economic History, 2016Co-Authors: Olivier Accominotti, David ChambersAbstract:This article explores the risks and returns to Currency Speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for Currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.
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If you’re so smart: John Maynard Keynes and Currency Speculation in the interwar years
LSE Research Online Documents on Economics, 2016Co-Authors: Olivier Accominotti, David ChambersAbstract:This article explores the risks and returns to Currency Speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for Currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.
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If You're So Smart: John Maynard Keynes and Currency Speculation in the Interwar Years
2015Co-Authors: Olivier Accominotti, David ChambersAbstract:This paper explores the risks and returns to Currency Speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s however, both technical strategies and Keynes performed relatively poorly. Whilst our results reveal the existence of profitable opportunities for Currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks which all strategies entailed.
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Out-of-sample evidence on the returns to Currency trading
2014Co-Authors: Olivier Accominotti, David ChambersAbstract:We document the existence of excess returns to naive Currency trading strategies during the emergence of the modern foreign exchange market in the 1920s and 1930s. This era of active Currency Speculation constitutes a natural out-of-sample test of the performance of carry, momentum and value strategies well documented in the modern era. We find that the positive carry and momentum returns in currencies over the last thirty years are also present in this earlier period. In contrast, the returns to a simple value strategy are negative. In addition, we benchmark the rules-based carry and momentum strategies against the discretionary strategy of an informed Currency trader: John Maynard Keynes. The fact that the strategies outperformed a superior trader such as Keynes underscores the outsized nature of their returns. Our findings are robust to controlling for transaction costs and, similar to today, are in part explained by the limits to arbitrage experienced by contemporary Currency traders.
Olivier Accominotti - One of the best experts on this subject based on the ideXlab platform.
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Foreign exchange markets and Currency Speculation: historical perspectives
2016Co-Authors: Olivier AccominottiAbstract:This chapter presents a short history of Currency Speculation and examines Currency returns over the long run. I first review the main institutional developments in foreign exchange markets from the Middle Ages to the modern period. Next, I discuss the existing evidence on the long-run profitability of Currency Speculation strategies. Finally, I examine selected historical case studies of Currency investors. The historical evidence suggests that foreign exchange traders can generate high profits but that any trading strategy also involves substantial risk. This is consistent with the view that the returns to Currency Speculation compensate investors for risk-taking.
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If you're so smart: John Maynard Keynes and Currency Speculation in the interwar years
The Journal of Economic History, 2016Co-Authors: Olivier Accominotti, David ChambersAbstract:This article explores the risks and returns to Currency Speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for Currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.
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If you’re so smart: John Maynard Keynes and Currency Speculation in the interwar years
LSE Research Online Documents on Economics, 2016Co-Authors: Olivier Accominotti, David ChambersAbstract:This article explores the risks and returns to Currency Speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for Currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.
-
If You're So Smart: John Maynard Keynes and Currency Speculation in the Interwar Years
2015Co-Authors: Olivier Accominotti, David ChambersAbstract:This paper explores the risks and returns to Currency Speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s however, both technical strategies and Keynes performed relatively poorly. Whilst our results reveal the existence of profitable opportunities for Currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks which all strategies entailed.
-
Out-of-sample evidence on the returns to Currency trading
2014Co-Authors: Olivier Accominotti, David ChambersAbstract:We document the existence of excess returns to naive Currency trading strategies during the emergence of the modern foreign exchange market in the 1920s and 1930s. This era of active Currency Speculation constitutes a natural out-of-sample test of the performance of carry, momentum and value strategies well documented in the modern era. We find that the positive carry and momentum returns in currencies over the last thirty years are also present in this earlier period. In contrast, the returns to a simple value strategy are negative. In addition, we benchmark the rules-based carry and momentum strategies against the discretionary strategy of an informed Currency trader: John Maynard Keynes. The fact that the strategies outperformed a superior trader such as Keynes underscores the outsized nature of their returns. Our findings are robust to controlling for transaction costs and, similar to today, are in part explained by the limits to arbitrage experienced by contemporary Currency traders.
Martin Eichenbaum - One of the best experts on this subject based on the ideXlab platform.
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Carry trade and momentum in Currency markets
Annual Review of Financial Economics, 2011Co-Authors: Craig Burnside, Martin Eichenbaum, Sergio RebeloAbstract:We examine the empirical properties of the payoffs to two popular Currency Speculation strategies: the carry trade and momentum. We review three possible explanations for the apparent profitability of these strategies. The first is that speculators are being compensated for bearing risk. The second is that these strategies are vulnerable to rare disasters or peso problems. The third is that there is price pressure in Currency markets.
-
Do Peso Problems Explain the Returns to the Carry Trade
Review of Financial Studies, 2010Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:We study the properties of the carry trade, a Currency Speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs that are on average large and uncorrelated with traditional risk factors. We argue that these payoffs reflect a peso problem. The underlying peso event features high values of the stochastic discount factor rather than very large negative payoffs.
-
Do Peso Problems Explain the Returns to the Carry Trade
SSRN Electronic Journal, 2010Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:We study the properties of the carry trade, a Currency Speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs which are on average large and uncorrelated with traditional risk factors. We investigate whether these payoffs reflect a peso problem. We argue that they do. We reach this conclusion by analyzing the payoffs to the hedged carry trade, in which an investor uses Currency options to protect himself from the downside risk from large, adverse movements in exchange rates
-
Do Peso Problems Explain the Returns to the Carry Trade
National Bureau of Economic Research, 2008Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:Currencies that are at a forward premium tend to depreciate. This `forward-premium puzzle' is an egregious deviation from uncovered interest parity. We document the properties of the carry trade, a Currency Speculation strategy that exploits this anomaly. This strategy consists of borrowing low-interest-rate currencies and lending high-interest-rate currencies. We first show that the carry trade yields a high Sharpe ratio that is not a compensation for risk. We then consider a hedged version of the carry trade, which protects the investor against large, adverse Currency movements. This strategy, implemented with Currency options, yields average payoffs that are statistically indistinguishable from the average payoffs to the standard carry trade. We argue that this finding implies that the peso problem cannot be a major determinant of the payoff to the carry trade.
-
CARRY TRADE: THE GAINS OF DIVERSIFICATION
Journal of the European Economic Association, 2008Co-Authors: Craig Burnside, Martin Eichenbaum, Sergio RebeloAbstract:Market participants routinely take advantage of the failure of uncovered interest rate parity to speculate in Currency markets. Perhaps the most widely used Currency Speculation strategy is the carry trade. In this article we take the perspective of an individual Currency trader and document the gains to diversifying the carry trade across different currencies. We show that these gains are large. Diversification boosts the typical Sharpe ratio by over 50%.
A. Craig Burnside - One of the best experts on this subject based on the ideXlab platform.
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Do Peso Problems Explain the Returns to the Carry Trade
Review of Financial Studies, 2010Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:We study the properties of the carry trade, a Currency Speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs that are on average large and uncorrelated with traditional risk factors. We argue that these payoffs reflect a peso problem. The underlying peso event features high values of the stochastic discount factor rather than very large negative payoffs.
-
Do Peso Problems Explain the Returns to the Carry Trade
SSRN Electronic Journal, 2010Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:We study the properties of the carry trade, a Currency Speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs which are on average large and uncorrelated with traditional risk factors. We investigate whether these payoffs reflect a peso problem. We argue that they do. We reach this conclusion by analyzing the payoffs to the hedged carry trade, in which an investor uses Currency options to protect himself from the downside risk from large, adverse movements in exchange rates
-
Do Peso Problems Explain the Returns to the Carry Trade
National Bureau of Economic Research, 2008Co-Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio RebeloAbstract:Currencies that are at a forward premium tend to depreciate. This `forward-premium puzzle' is an egregious deviation from uncovered interest parity. We document the properties of the carry trade, a Currency Speculation strategy that exploits this anomaly. This strategy consists of borrowing low-interest-rate currencies and lending high-interest-rate currencies. We first show that the carry trade yields a high Sharpe ratio that is not a compensation for risk. We then consider a hedged version of the carry trade, which protects the investor against large, adverse Currency movements. This strategy, implemented with Currency options, yields average payoffs that are statistically indistinguishable from the average payoffs to the standard carry trade. We argue that this finding implies that the peso problem cannot be a major determinant of the payoff to the carry trade.
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The Returns to Currency Speculation in Emerging Markets
American Economic Review, 2007Co-Authors: A. Craig Burnside, Martin Eichenbaum, Sergio RebeloAbstract:The carry trade strategy involves selling forward currencies that are at a forward premium and buying forward currencies that are at a forward discount. We compare the payoffs to the carry trade applied to two different portfolios. The first portfolio consists exclusively of developed country currencies. The second portfolio includes the currencies of both developed countries and emerging markets. Our main empirical findings are as follows. First, including emerging market currencies in our portfolio substantially increases the Sharpe ratio associated with the carry trade. Second, bid-ask spreads are two to four times larger in emerging markets than in developed countries. Third and most dramatically, the payoffs to the carry trade for both portfolios are uncorrelated with returns to the U.S. stock market.(This abstract was borrowed from another version of this item.)
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The Returns to Currency Speculation in Emerging Markets
National Bureau of Economic Research, 2007Co-Authors: A. Craig Burnside, Martin Eichenbaum, Sergio RebeloAbstract:The carry trade strategy involves selling forward currencies that are at a forward premium and buying forward currencies that are at a forward discount. We compare the payoffs to the carry trade applied to two different portfolios. The first portfolio consists exclusively of developed country currencies. The second portfolio includes the currencies of both developed countries and emerging markets. Our main empirical findings are as follows. First, including emerging market currencies in our portfolio substantially increases the Sharpe ratio associated with the carry trade. Second, bid-ask spreads are two to four times larger in emerging markets than in developed countries. Third and most dramatically, the payoffs to the carry trade for both portfolios are uncorrelated with returns to the U.S. stock market.
