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Systemic risk in carry-trade portfolios


  • Liu, Chih-Liang
  • Yang, Hsin-Feng


Risk contagion between carry trade portfolios and stock markets had been explored in literatures, leaving inconsistent controversy. Instead of exploring ordinary return-volatility spillovers, this paper focuses on a systemic contagion, the tail risk conditional on extreme events in other markets. Using a conditional value-at-risk (CoVaR) model, we contribute to this line of literature by showing that there is bilateral systemic contagion between carry trades and stock markets in the U.S., European, or Asia-Pacific regions. Such a systemic contagion is particularly significant during the 2000–2001 dot-com bubble and 2007–2009U.S. credit crisis.

Suggested Citation

  • Liu, Chih-Liang & Yang, Hsin-Feng, 2017. "Systemic risk in carry-trade portfolios," Finance Research Letters, Elsevier, vol. 20(C), pages 40-46.
  • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:40-46
    DOI: 10.1016/

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    References listed on IDEAS

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    More about this item


    Carry trade; Systemic contagion; CoVaR model; Financial crisis;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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