Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286907 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Atlantic Economic Journal [ISSN:] 1573-9678 [Volume:] 49 [Issue:] 1 [Publisher:] Springer US [Place:] New York, NY [Year:] 2021 [Pages:] 23-40
Publisher: 
Springer US, New York, NY
Abstract: 
The returns to carry trades are controversially discussed. There seems to be no unifying risk-based explanation of currency returns and stock returns, while the countries' interest rate differential plays a leading part in the carry-trade performance. Therefore, this paper addresses carry-trade returns from a risk-pricing perspective and examines if these returns can be connected to cross-country differences in risk pricing in the interest-rate market compared to the stock market. Data from Thomson Reuters Datastream and Federal Reserve Economic Data covering Australia, Japan, New Zealand, Switzerland and the United States were analyzed based on GMM estimation. The results indicate significant and persistent cross-country differences in risk aversion in the interest-rate market compared to the implied risk aversion in the stock market. This may offer opportunities for risk arbitrage and, therefore, a risk pricing-related explanation of carry-trade returns.
Subjects: 
Carry Trade
Currency Returns
Foreign Exchange
Risk Aversion
Stochastic Discount Factor
JEL: 
E21
F31
G12
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.