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Carry Trade y Turbulencias Cambiarias con el Peso Chileno

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  • José Carreño
  • Paulo Cox

Abstract

In this paper we provide evidence on the relation between the currency carry trade and currency crashes with the Chilean peso. Using rich information from the local Chilean forward market, we show that speculation over recently high interest rate differentials between the peso and developed countries’ currencies, has led to several episodes of abnormal turbulence, as measured by the exchange rate change distribution’s skewness coefficient. In line with the interpretative framework linking turbulence to changes in the future positions of speculators, we find that turbulence is higher in periods across which measures for global uncertainty have been high.

Suggested Citation

  • José Carreño & Paulo Cox, 2014. "Carry Trade y Turbulencias Cambiarias con el Peso Chileno," Working Papers Central Bank of Chile 733, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:733
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    References listed on IDEAS

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    1. Yi Wu, 2013. "What Explains Movements in the Peso/Dollar Exchange Rate?," IMF Working Papers 13/171, International Monetary Fund.
    2. Hanno Lustig & Nikolai Roussanov & Adrien Verdelhan, 2011. "Common Risk Factors in Currency Markets," Review of Financial Studies, Society for Financial Studies, vol. 24(11), pages 3731-3777.
    3. Craig Burnside & Bing Han & David Hirshleifer & Tracy Yue Wang, 2011. "Investor Overconfidence and the Forward Premium Puzzle," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 523-558.
    4. Sergio A. Díaz & Paula A. González & Claudia A. Sotz, 2013. "Carry-To-Risk Ratio como medida de Carry Trade," Economic Statistics Series 94, Central Bank of Chile.
    5. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
    6. Plantin, Guillaume & Shin, Hyun Song, 2011. "Carry Trades, Monetary Policy and Speculative Dynamics," CEPR Discussion Papers 8224, C.E.P.R. Discussion Papers.
    7. Ichiue, Hibiki & Koyama, Kentaro, 2011. "Regime switches in exchange rate volatility and uncovered interest parity," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1436-1450.
    8. Jacob Gyntelberg & Eli M Remolona, 2007. "Risk in carry trades: a look at target currencies in Asia and the Pacific," BIS Quarterly Review, Bank for International Settlements, December.
    9. Philippe Bacchetta & Eric van Wincoop, 2010. "Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle," American Economic Review, American Economic Association, vol. 100(3), pages 870-904, June.
    10. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
    11. Bekaert, Geert & Hodrick, Robert J, 1992. " Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 467-509, June.
    12. Luís Antonio Ahumada & Jorge Selaive C., 2007. "Desarrollo del mercado de derivados cambiarios en Chile," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 22(1), pages 35-58, June.
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    Cited by:

    1. Fredy Gamboa-Estrada, 2016. "Carry Trade y Depreciaciones Bruscas del Tipo de Cambio en Colombia," Borradores de Economia 957, Banco de la Republica de Colombia.
    2. repec:bla:manchs:v:85:y:2017:i::p:57-78 is not listed on IDEAS

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