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Determinants of carry trades in Central and Eastern Europe

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  • A. Hoffmann

Abstract

The article shows that carry trades to Central and Eastern Europe (CEE) were lucrative during the boom period 2004--2006 when interest rate spreads between the funding and investment currencies were high. In contrast, when liquidity risk and exchange rate volatility increased after 2007, carry trades were unprofitable. The analysis further suggests that there is a link between the exchange rate regime and carry trade returns. Overall, exchange rate stabilization, particularly via managed floats, seems to go along with the highest profit opportunities.

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File URL: http://hdl.handle.net/10.1080/09603107.2012.663470
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 22 (2012)
Issue (Month): 18 (September)
Pages: 1479-1490

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Handle: RePEc:taf:apfiec:v:22:y:2012:i:18:p:1479-1490

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  1. Andreas Hoffmann & Gunther Schnabl, 2011. "A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View," The World Economy, Wiley Blackwell, vol. 34(3), pages 382-403, 03.
  2. Hoffmann, Andreas, 2009. "An Overinvestment Cycle in Central and Eastern Europe?," MPRA Paper 15668, University Library of Munich, Germany.
  3. Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
  4. Paul Grauwe & Gunther Schnabl, 2004. "EMU entry strategies for the new member states," Intereconomics: Review of European Economic Policy, Springer, vol. 39(5), pages 241-246, September.
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