IDEAS home Printed from https://ideas.repec.org/a/kap/openec/v36y2025i4d10.1007_s11079-024-09795-0.html
   My bibliography  Save this article

Boosting Carry with Equilibrium Exchange Rate Estimates

Author

Listed:
  • Michał Rubaszek

    (Collegium of Economic Analysis)

  • Joscha Beckmann

    (FernUniversität Hagen and Kiel Institute for the World Economy)

  • Michele Ca’ Zorzi

    (European Central Bank)

  • Marek Kwas

    (Collegium of Economic Analysis)

Abstract

We construct currency portfolios based on the premise that exchange rates gradually converge toward their equilibrium levels, yielding three key findings. First, this convergence can be leveraged to build profitable portfolios. Second, the slow rate of convergence over shorter horizons aligns with the sustained profitability of carry trade strategies, where investors borrow in low-yield currencies and invest in high-yield ones. Third, incorporating the predictive insights of equilibrium exchange rates can boost the performance of carry trade strategies.

Suggested Citation

  • Michał Rubaszek & Joscha Beckmann & Michele Ca’ Zorzi & Marek Kwas, 2025. "Boosting Carry with Equilibrium Exchange Rate Estimates," Open Economies Review, Springer, vol. 36(4), pages 1281-1307, September.
    • Handle: RePEc:kap:openec:v:36:y:2025:i:4:d:10.1007_s11079-024-09795-0
    DOI: 10.1007/s11079-024-09795-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11079-024-09795-0
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11079-024-09795-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:openec:v:36:y:2025:i:4:d:10.1007_s11079-024-09795-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.