RT Journal Article
SR Electronic
T1 Global Risk Co-Moments and Carry Trade Strategy
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 73
OP 99
DO 10.3905/jfi.2018.27.4.073
VO 27
IS 4
A1 Mohammadreza Tavakoli Baghdadabad
A1 Girijasankar Mallik
YR 2018
UL https://pm-research.com/content/27/4/73.abstract
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