Work

Do Peso Problems Explain the Returns to the Carry Trade?

Year: 2008

Type: report

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 which 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.

Source: National Bureau of Economic Research

DOI: 10.3386/w14054

Authors: A. Craig Burnside, Martin Eichenbaum, Isaac Kleshchelski, Sergio Rebelo

Institutions: Northwestern University, National Bureau of Economic Research, Duke University, Washington University in St. Louis

Language: Portuguese

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2890380864

Cites: 29

Cited by: 64

Related to: 10