Carry / Ralph S.J. Koijen, Tobias J. Moskowitz, Lasse Heje Pedersen, Evert B. Vrugt.

Format:

Book

Author/Creator:

Koijen, Ralph S.J.

Contributor:

National Bureau of Economic Research.

Moskowitz, Tobias J.

Pedersen, Lasse Heje.

Vrugt, Evert B.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19325.

NBER working paper series no. w19325

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

A security's expected return can be decomposed into its "carry" and its expected price appreciation, where carry can be measured in advance without an asset pricing model. We find that carry predicts returns both in the cross section and time series for a variety of different asset classes that include global equities, global bonds, currencies, commodities, US Treasuries, credit, and equity index options. This predictability underlies the strong returns to "carry trades" that go long high-carry and short low-carry securities, applied almost exclusively to currencies, but shown here to be a robust feature of many assets. We decompose carry returns into static and dynamic components and analyze the economic exposures. Despite unconditionally low correlations across asset classes, we find times when carry strategies across all asset classes do poorly, and show that these episodes coincide with global recessions.

Notes:

Print version record

August 2013.