#5 – FX Carry Trade
Doskov, Swinkels: Empirical Evidence on the Currency Carry Trade, 1900-2012
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2060207
Abstract:
Most of the currency literature investigates the risk and return characteristics of the currency carry trade after the collapse of the Bretton Woods system. In order to gauge the long-term currency carry premium, we extend the sample to 20 currencies over the period 1900 to 2012. We find modest Sharpe ratios in the range of 0.2 to 0.4 for carry trading over this period. This is markedly lower than the Sharpe ratios above 0.6 reported for recent sample periods. We document that carry trading occasionally incurs substantial losses, which fits well with risk-based explanations for deviations from uncovered interest parity. We find that large carry trading losses do not necessarily coincide with large losses in global equity markets. Our results help to better understand the source and nature of excess returns on the carry trade.
#6 – Volatility Effect in Stocks – Long-Short Version
#7 – Volatility Effect in Stocks – Long-Only Version
Falkenstein: Requisite Assumptions for the Persistence of the Low Volatility Anomaly
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2537050
Abstract:
Common explanations of the low volatility anomaly involve biases or frictions that cause investors to overpay for high volatility assets, giving them a negative alpha within the CAPM model, yet currently all such mechanisms are either heuristic or partial equilibrium. This paper shows that leverage constraints of Frazzini and Pedersen (2014) alone cannot explain this result if there also exist rational investors. If 3 non-standard assumptions are added — hybrid relative utility, delusional subset of investors, residual systematic risk across beta — then we can capture several facts existing models cannot simultaneously capture: a positive return to the market, positive holdings by rational investors to negative CAPM-alpha stocks, and a negative Security Market Line. New data relevant to these assumptions are presented.
#5 – FX Carry Trade
#230 – Mean Variance Carry Trade Strategy
Reichenecker: Currency Carry Trade Portfolios and Its Sensitivity to Interest Rates
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2517467
Abstract:
This paper provides an empirical investigation of 5 different optimized carry trade portfolios and four naïve carry trade portfolio for G10 and emerging market currencies. It is shown that optimized carry trade portfolios have smaller downside and crash risk, are less correlated to the global market portfolio, and are more profitable during the recent financial crises, than naïve carry trade portfolios. Contrarily to naïve carry trade portfolio, risk and return measures of optimized currency carry trade portfolios have a linear relationship with a single implied interest rate shock. Sensitivities can be used to conduct the market risk for optimized currency carry trade portfolios.
