Abstract
This study employs a conditional factor model in order to investigate the time-varying profitability of currency carry trades. To that end, I estimate conditional alphas and betas on the popular dollar and carry factors through the use of a nonparametric approach. The empirical results illustrate that the alphas and betas vary over time. Furthermore, I find that the alpha of a high interest rate currency portfolio increases in a trough in a business cycle and in a state of high market uncertainty. However, the beta on the dollar factor decreases in these market conditions, suggesting that investors reduce the foreign currency risk exposure.
Original language | English |
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Pages (from-to) | 198-208 |
Number of pages | 11 |
Journal | International Review of Financial Analysis |
Volume | 63 |
DOIs | |
Publication status | Published - May 2019 |
Keywords
- Conditional factor model
- Currency carry trades
- Nonparametric estimator
- Time-varying beta
ASJC Scopus subject areas
- Finance
- Economics and Econometrics