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Risk in carry trades: a look at target currencies in Asia and the Pacific

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  • Jacob Gyntelberg
  • Eli M Remolona

Abstract

We analyse carry trades involving the Australian dollar, Indonesian rupiah, Indian rupee, New Zealand dollar and Philippine peso as target currencies. We find evidence supporting the view that downside risk is an important feature of such strategies and propose ways of measuring this risk.

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File URL: http://www.bis.org/publ/qtrpdf/r_qt0712h.pdf
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Bibliographic Info

Article provided by Bank for International Settlements in its journal BIS Quarterly Review.

Volume (Year): (2007)
Issue (Month): (December)
Pages:

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Handle: RePEc:bis:bisqtr:0712h

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References

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  1. Manfred Gilli & Evis këllezi, 2006. "An Application of Extreme Value Theory for Measuring Financial Risk," Computational Economics, Society for Computational Economics, vol. 27(2), pages 207-228, May.
  2. Burnside, A Craig & Eichenbaum, Martin & Rebelo, Sérgio, 2007. "The Returns to Currency Speculation in Emerging Markets," CEPR Discussion Papers 6148, C.E.P.R. Discussion Papers.
  3. Charles Engel, 1996. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
  4. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
  5. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
  6. Gabriele Galati & Alexandra Heath & Patrick McGuire, 2007. "Evidence of carry trade activity," BIS Quarterly Review, Bank for International Settlements, September.
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Cited by:
  1. Tsuyuguchi, Yosuke & Wooldridge, Philip D., 2008. "The evolution of trading activity in Asian foreign exchange markets," Emerging Markets Review, Elsevier, vol. 9(4), pages 231-246, December.
  2. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
  3. Prof. Marin Oprițescu Ph. D, Assist. Alina Manta Ph. D, 2011. "New Trends In Banking Due To The International Financial Crisis," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 4(39), pages 229-242, May.
  4. Drut, Bastien & Brière, Marie, 2009. "The Revenge of Purchasing Power Parity on Carry Trades during Crises," Economics Papers from University Paris Dauphine 123456789/7743, Paris Dauphine University.
  5. Yosuke Tsuyuguchi & Philip D Wooldridge, 2008. "The evolution of trading activity in Asian foreign exchange markets," BIS Working Papers 252, Bank for International Settlements.
  6. Charlotte Christiansen & Angelo Ranaldo & Paul Söderlind, 2010. "The Time-Varying Systematic Risk of Carry Trade Strategies," Working Papers 2010-01, Swiss National Bank.
  7. Kaizoji, Taisei, 2010. "Carry Trade, Forward Premium Puzzle and Currency Crisis," MPRA Paper 21432, University Library of Munich, Germany.
  8. Robert McCauley & Patrick McGuire & Goetz von Peter, 2010. "The architecture of global banking: from international to multinational?," BIS Quarterly Review, Bank for International Settlements, March.
  9. Robert N McCauley & Patrick McGuire, 2009. "Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging," BIS Quarterly Review, Bank for International Settlements, December.
  10. Marin Opriţescu & Alina Manta, 2010. "New Trends In Banking Due To The International Financial Crisis," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 3(38), pages 527-541, May.
  11. Brana, Sophie & Lahet, Delphine, 2009. "Les déterminants des entrées de capitaux en Asie : quel rôle pour les stratégies de carry trade?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(3), pages 283-302, septembre.
  12. Tse, Yiuman & Wald, John K., 2013. "Insured uncovered interest parity," Finance Research Letters, Elsevier, vol. 10(4), pages 175-183.
  13. McCauley, Robert & McGuire, Patrick & von Peter, Goetz, 2012. "After the global financial crisis: From international to multinational banking?," Journal of Economics and Business, Elsevier, vol. 64(1), pages 7-23.
  14. Brana, Sophie & Lahet, Delphine, 2010. "Determinants of capital inflows into Asia: The relevance of contagion effects as push factors," Emerging Markets Review, Elsevier, vol. 11(3), pages 273-284, September.
  15. Jacob Gyntelberg & Andreas Schrimpf, 2011. "FX strategies in periods of distress," BIS Quarterly Review, Bank for International Settlements, December.
  16. Fong, Wai Mun, 2010. "A stochastic dominance analysis of yen carry trades," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1237-1246, June.

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