Burnside, C. , Eichenbaum, M. and Rebelo, S. (2008) Carry trade: the gains of diversification. Journal of the European Economic Association, 6(2-3), pp. 581-588. (doi: 10.1162/JEEA.2008.6.2-3.581)
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Abstract
Market participants routinely take advantage of the failure of uncovered interest rate parity to speculate in currency markets. Perhaps the most widely used currency speculation strategy is the carry trade. In this article we take the perspective of an individual currency trader and document the gains to diversifying the carry trade across different currencies. We show that these gains are large. Diversification boosts the typical Sharpe ratio by over 50%.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Burnside, Professor Craig |
| Authors: | Burnside, C., Eichenbaum, M., and Rebelo, S. |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Journal of the European Economic Association |
| ISSN: | 1542-4766 |
| ISSN (Online): | 1542-4774 |
| Published Online: | 13 December 2010 |
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