Discussion Paper Details

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Title: Carry Trade and Momentum in Currency Markets

Author(s): Craig Burnside, Martin Eichenbaum and Sérgio Rebelo

Publication Date: April 2011

Keyword(s): Exchange rates, forward rates and uncovered interest parity

Programme Area(s): International Macroeconomics

Abstract: We examine the empirical properties of the payoffs to two popular currency speculation strategies: the carry trade and momentum. We review three possible explanations for the apparent profitability of these strategies. The first is that speculators are being compensated for bearing risk. The second is that these strategies are vulnerable to rare disasters or peso problems. The third is that there is price pressure in currency markets.

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Bibliographic Reference

Burnside, C, Eichenbaum, M and Rebelo, S. 2011. 'Carry Trade and Momentum in Currency Markets'. London, Centre for Economic Policy Research.