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Dimensions of Carry and Its Profitability as an Investment Strategy
Growing Academic Interest in Currency Carry
CARRY STRATEGIES NOT ONLY HAVE GROWN IN SIZE, BUT have spread across the financial markets. The lessons of history can help us to understand what to expect in the future.
Academic researchers began documenting the existence of currency carry profits almost 40 years ago with studies showing that currencies with high interest rates tended to appreciate relative to those with low interest rates. This violates the theory of uncovered interest rate parity (UIP), which assumes currencies have the same expected returns. Under this assumption, a higher interest rate should be compensation for an expected depreciation of the exchange rate, ...
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