Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149297
Authors: 
Melvin, Michael
Shand, Duncan
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6210
Abstract: 
We analyze the worst currency carry loss episodes in recent decades, including causes, attribution by currency, timing, and the duration of carry drawdowns. To explore the determinants of the length of carry losses, a model of carry drawdown duration is estimated. We find evidence that drawdown duration varies systematically with expected return from the carry trade at the onset of the drawdown, financial stress indicators and the magnitude of deviations from a fundamental value portfolio of the carry-related portfolio holdings. In an out-of-sample test, we show that these determinants can be used to control carry-related losses and improve investment performance.
Subjects: 
carry trade
financial risk
duration
active portfolio management
JEL: 
E44
F31
G15
Document Type: 
Working Paper

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