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Carry Trade and Momentum in Currency Markets

Author

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  • Eichenbaum, Martin
  • Rebelo, Sérgio
  • Burnside, Craig

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.

Suggested Citation

  • Eichenbaum, Martin & Rebelo, Sérgio & Burnside, Craig, 2011. "Carry Trade and Momentum in Currency Markets," CEPR Discussion Papers 8343, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8343
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    Keywords

    Exchange rates; Forward rates; Uncovered interest parity;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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