Burnside, C. , Eichenbaum, M., Kleshchelski, I. and Rebelo, S. (2011) Do peso problems explain the returns to the carry trade? Review of Financial Studies, 24(3), pp. 853-891. (doi: 10.1093/rfs/hhq138)
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Abstract
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 that 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.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Burnside, Professor Craig |
| Authors: | Burnside, C., Eichenbaum, M., Kleshchelski, I., and Rebelo, S. |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Review of Financial Studies |
| ISSN: | 0893-9454 |
| ISSN (Online): | 1465-7368 |
| Published Online: | 22 December 2010 |
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