Tales of tails: Jumps in currency markets

We investigate the predictability of jumps in currency markets and show the implications for carry trades. Formulating new currency jump analyses, we propose a general method to estimate the determinants of jump sizes and intensities at various frequencies. We employ a large panel of high-frequency data and identify significant predictive relationships between currency jumps and national characteristics. In addition, we find the patterns of intraday jumps (i.e., multiple currency jump clustering and time-of-day effects). Macroeconomic information releases in the United States, particularly FOMC announcements, lead to currency jumps. Using these jump predictors, investors can construct jump-robust carry trades to mitigate left-tail risks.