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Do Peso Problems Explain the Returns to the Carry Trade? / A. Craig Burnside, Martin S. Eichenbaum, Isaac Kleshchelski, Sergio Rebelo.
- Format:
- Book
- Author/Creator:
- Burnside, A. Craig.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w14054.
- NBER working paper series no. w14054
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2008.
- Summary:
- 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.
- Notes:
- Print version record
- June 2008.
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