PT  - JOURNAL ARTICLE
AU  - Mohammadreza Tavakoli Baghdadabad
AU  - Girijasankar Mallik
TI  - Global Risk Co-Moments and Carry Trade Strategy
AID  - 10.3905/jfi.2018.27.4.073
DP  - 2018 Mar 31
TA  - The Journal of Fixed Income
PG  - 73--99
VI  - 27
IP  - 4
4099  - https://pm-research.com/content/27/4/73.short
4100  - https://pm-research.com/content/27/4/73.full
AB  - The authors examine the relation between two global risk factors of co-skewness and co-kurtosis and the cross-section of currency excess returns arising from well-known strategies that borrow in currencies with low interest rates and invest in currencies with high interest rates—so-called carry trades. These global factors are constructed by distinguishing between U.S.-specific and global components of the market return. The authors find that currencies with high interest rates are negatively related to global co-skewness and thus deliver low returns in times of unexpected high global co-skewness, during which time currencies with low interest rates can provide a hedge by yielding positive returns. Their findings show that global co-skewness and co-kurtosis are key drivers of risk premia in exchange markets and are robust to various checks.TOPICS: Fixed income and structured finance, analysis of individual factors/risk premia, statistical methods