The returns to currency speculation in emerging markets
By: Craig Burnside, Martin Eichenbaum, Sergio Rebelo.
Contributors: Eichenbaum, Martin.; Rebelo, Sergio.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 12916; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12916.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The carry trade strategy involves selling forward currencies that are at a forward premium and buying forward currencies that are at a forward discount.  We compare the payoffs to the carry trade applied to two different portfolios.  The first portfolio consists exclusively of developed country currencies.  The second portfolio includes the currencies of both developed countries and emerging markets.  Our main empirical findings are as follows.  First, including emerging market currencies in our portfolio substantially increases the Sharpe ratio associated with the carry trade.  Second, bid-ask spreads are two to four times larger in emerging markets than in developed countries.  Third and most dramatically, the payoffs to the carry trade for both portfolios are uncorrelated with returns to the U.S.  stock market"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/5/2007.

Includes bibliographical references.

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