Monotonicity and Currency Carry Trades: The Implications for Uncovered Interest Rate Parity and Expected Shortfall
Uncovered interest rate parity (UIP) implies that currency carry trades should not yield excess returns. We find that there is statistical evidence in favour of an increasing monotonic relation in the excess return from currency carry trades with respect to forward discounts. It follows that a larger interest rate differential indeed implies larger excess returns. Furthermore it seems that Expected Shortfall (ES) does not explain the excess return associated with currency carry trades adequately as we reject an increasing monotonic relation when we sort excess returns on their ES.
|Keywords||Uncovered interest rate parity, currency carry trades, forward premium, expected shortfall, monotonicity tests|
|Thesis Advisor||Kole, H.J.W.G.|
Gruson, D.A. (Daan). (2017, August 10). Monotonicity and Currency Carry Trades: The Implications for Uncovered Interest Rate Parity and Expected Shortfall. Econometrie. Retrieved from http://hdl.handle.net/2105/38601