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Upside and downside risk exposures of currency carry trades via tail dependence
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Ames, Matthew, Peters, Gareth W., Bagnarosa, Guillaume and Kosmidis, Ioannis (2015) Upside and downside risk exposures of currency carry trades via tail dependence. In: Innovations in Quantitative Risk Management, TU München, Sep 2013. Published in: Innovations in Quantitative Risk Management pp. 163-181. ISBN 9783319091136.
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Official URL: https://doi.org/10.1007/978-3-319-09114-3_10
Abstract
Currency carry trade is the investment strategy that involves selling low interest rate currencies in order to purchase higher interest rate currencies, thus profiting from the interest rate differentials. This is a well known financial puzzle to explain, since assuming foreign exchange risk is uninhibited and the markets have rational risk-neutral investors, then one would not expect profits from such strategies. That is, according to uncovered interest rate parity (UIP), changes in the related exchange rates should offset the potential to profit from such interest rate differentials. However, it has been shown empirically, that investors can earn profits on average by borrowing in a country with a lower interest rate, exchanging for foreign currency, and investing in a foreign country with a higher interest rate, whilst allowing for any losses from exchanging back to their domestic currency at maturity.
Item Type: | Conference Item (Paper) | ||||
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Subjects: | H Social Sciences > HA Statistics H Social Sciences > HG Finance |
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Divisions: | Faculty of Science, Engineering and Medicine > Science > Statistics | ||||
Journal or Publication Title: | Innovations in Quantitative Risk Management | ||||
Publisher: | Springer International Publishing | ||||
ISBN: | 9783319091136 | ||||
Official Date: | 10 January 2015 | ||||
Dates: |
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Page Range: | pp. 163-181 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Conference Paper Type: | Paper | ||||
Title of Event: | Innovations in Quantitative Risk Management | ||||
Type of Event: | Conference | ||||
Location of Event: | TU München | ||||
Date(s) of Event: | Sep 2013 |
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