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Determinants of carry trades in Central and Eastern Europe


  • A. Hoffmann


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.

Suggested Citation

  • A. Hoffmann, 2012. "Determinants of carry trades in Central and Eastern Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 22(18), pages 1479-1490, September.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:18:p:1479-1490 DOI: 10.1080/09603107.2012.663470

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    References listed on IDEAS

    1. Andreas Hoffmann, 2010. "An Overinvestment Cycle In Central And Eastern Europe?," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 711-734, November.
    2. 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, March.
    3. Paul Grauwe & Gunther Schnabl, 2004. "EMU entry strategies for the new member states," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 39(5), pages 241-246, September.
    4. 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.
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    Cited by:

    1. Coudert, Virginie & Mignon, Valérie, 2013. "The “forward premium puzzle” and the sovereign default risk," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 491-511.
    2. Juan Carlos Cuestas & Fabio Filipozzi & Karsten Staehr, 2015. "Uncovered Interest Parity in Central and Eastern Europe: Sample, Expectations and Structural Breaks," Working Papers 2015014, The University of Sheffield, Department of Economics.
    3. Hoffmann, Andreas & Löffler, Axel, 2014. "Low interest rate policy and the use of reserve requirements in emerging markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 307-314.
    4. repec:bla:reviec:v:25:y:2017:i:4:p:695-710 is not listed on IDEAS
    5. Juan Carlos Cuestas & Fabio Filipozzi & Karsten Staehr, 2017. "Uncovered interest parity in Central and Eastern Europe: Expectations and structural breaks," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 695-710, September.
    6. Kim, Suk-Joong, 2015. "Australian Dollar carry trades: Time varying probabilities and determinants," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 64-75.
    7. Auer, Benjamin R. & Hoffmann, Andreas, 2016. "Do carry trade returns show signs of long memory?," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 201-208.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions


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