Erdős, Péter L., Li, Youwei, Moore, Michael J. and Shehadeh, Ali (2016) US Dollar carry trades in the era of “cheap money”. Czech Journal of Economics and Finance, 66 (5). pp. 374-404. ISSN 2464-7683.

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Abstract

In this paper, we employ a unique dataset of actual US dollar (USD) forward positions against a number of currencies taken by so-called commodity trading advisors (CTAs). We investigate the extent to which these positions exhibit a pattern of USD carry trading or other patterns of currency trading over the recent period of ultra-loose US monetary policy. Our analysis indeed shows that USD positions against emerging-market currencies are characterised by a pattern of carry trading. That is, the US dollar, as the lower-yielding currency, is associated with short positions. The payoff distributions of these positions, moreover, are found to have positive Sharpe ratios, negative skewness and high kurtosis. On the other hand, we find that USD positions against other developed-market currencies have a pattern completely opposite to carry trading, which is in line with the uncovered interest parity trading; i.e. the lower-yielding (higher-yielding) currency is associated with long (short) positions.

Item Type:	Journal Article
Alternative Title:
Divisions:	Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Czech Journal of Economics and Finance
Publisher:	Charles University, Faculty of Social Sciences
ISSN:	2464-7683
Official Date:	2016
Dates:	Date Event 2016 Published 1 October 2016 Accepted
Volume:	66
Number:	5
Page Range:	pp. 374-404
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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