Review of Financial Studies Vol. 24 No. 3 2011
Do Peso Problems Explain the Returns to the Carry Trade?
Abstract
[We study the properties of the carry trade, a currency speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs that are on average large and uncorrelated with traditional risk factors. We argue that these payoffs reflect a peso problem. The underlying peso event features high values of the stochastic discount factor rather than very large negative payoffs.]
- Volume
- 24
- Issue
- 3
- Pages
- 853-891
- Sources
- bibtex:phds-export.bib