Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2016
Journal
Journal of Internal Money and Finance
Book
Publication Volume
16
Publication Issue
June
Publication Begin page
62
Publication End page
87
Publication Number of pages
Collections
Abstract
Equity returns predict carry trade profits from shorting low interest rate currencies. Commodity price changes predict profits from longing high interest rate currencies. The gradual information diffusion hypothesis (Hong & Stein, 1999) provides a ready explanation for these predictability results. These results cannot be explained by time-varying risk premia as stock returns and commodity price changes significantly predict negative carry trade profits. The predictability is one-directional, from commodities to high interest rate currencies, from commodities to stocks and from stocks to low interest rate currencies.
Research Projects
Organizational Units
Journal Issue
Keywords
Carry Trade, Gradual Information Diffusion, Return Predictability, Safe-Haven Currencies, Time-Varying Risk Premium, Vector Auto Regression