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Concealed Carry

Author

Listed:
  • Andrews, Spencer
  • Colacito, Ric
  • Croce, Mariano
  • Gavazzoni, Federico

Abstract

The slope carry takes a long (short) position in the long-term bonds of countries with steeper (flatter) yield curves. The traditional carry takes a long (short) position in countries with high (low) short-term rates. We document that: (i) the slope carry return is slightly negative (strongly positive) in the pre (post) 2008 period, whereas it is concealed over longer samples; (ii) the traditional carry return is lower post-2008; and (iii) expected global growth and inflation declined post-2008. We connect these findings through an equilibrium model in which countries feature heterogeneous exposure to news shocks about global output and global inflation.

Suggested Citation

  • Andrews, Spencer & Colacito, Ric & Croce, Mariano & Gavazzoni, Federico, 2023. "Concealed Carry," CEPR Discussion Papers 18670, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18670
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    More about this item

    Keywords

    Foreign inflation risk premiums;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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