Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330414 
Year of Publication: 
2024
Citation: 
[Journal:] Open Economies Review [ISSN:] 1573-708X [Volume:] 36 [Issue:] 4 [Publisher:] Springer US [Place:] New York, NY [Year:] 2024 [Pages:] 1281-1307
Publisher: 
Springer US, New York, NY
Abstract: 
We construct currency portfolios based on the premise that exchange rates gradually converge toward their equilibrium levels, yielding three key findings. First, this convergence can be leveraged to build profitable portfolios. Second, the slow rate of convergence over shorter horizons aligns with the sustained profitability of carry trade strategies, where investors borrow in low-yield currencies and invest in high-yield ones. Third, incorporating the predictive insights of equilibrium exchange rates can boost the performance of carry trade strategies.
Subjects: 
Equilibrium exchange rate
Carry trade
Trading strategies
JEL: 
F31
G12
G15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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