Carry Trades, Momentum Trading and the Forward Premium Anomaly
نویسنده
چکیده
This paper examines the role of carry trade and momentum trading strategies and their implications for the magnitude of the forward premium anomaly. The formal analysis uses a logistic smooth transition regression, with transition variables related to the di¤erent currency trading strategies. The hypothesis of uncovered interest parity is found to hold in an upper regime where carry trades appear pro table on the basis of interest di¤erentials and where exchange rate volatility is high. JEL Classi cation: C22, F31, F41.
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Risk-Premia, Carry-Trade Dynamics, and Speculative Efficiency of Currency Markets
Foreign exchange market efficiency is commonly investigated by Fama-regression tests of uncovered interest parity (UIP). In this paper, we conjecture a speculative UIP relationship which implies that exchange rate changes comprise a time-varying risk component in addition to the forward premium. This suggests that the forward premium anomaly reported in previous research potentially stems from ...
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