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Carry Trade with Maintained Currencies - A Risk and Return Analysis for the Egyptian Pound

Author

Listed:
  • Christian Kalhoefer

    (Faculty of Management Technology, The German University in Cairo)

  • Sara Shenouda

    (Faculty of Management Technology, The German University in Cairo)

  • Ahmed Badawi

    (Faculty of Management Technology, The German University in Cairo)

Abstract

The forward premium puzzle in the exchange rate market, resulting from the deviation and failure of interest rate parity, has awakened the interest of speculators to perform carry trade activities. Across literature the main risk associated and measured for carry trade has been the exchange rate risk and crash risk related to the relevant currencies used. But within the literature, the influence of maintained currencies on the carry trade results has not yet been covered. This paper analyzes the potential performance and the risk of carry trade strategies within a maintained exchange rate regime. For this analysis an empirical study of carry trade strategies applied between the EGP and other currencies has been used and compared to those with the USD as an example for a maintained exchange rate. Our risk and return analysis clearly shows a combination of high return and low risk for the maintained currency carry trade.

Suggested Citation

  • Christian Kalhoefer & Sara Shenouda & Ahmed Badawi, 2010. "Carry Trade with Maintained Currencies - A Risk and Return Analysis for the Egyptian Pound," Working Papers 24, The German University in Cairo, Faculty of Management Technology.
    • Handle: RePEc:guc:wpaper:24
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    File URL: http://mgt.guc.edu.eg/wpapers/024kalhoefer_shenouda_badawi2010.pdf
    File Function: First version, 2010
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    More about this item

    Keywords

    Carry Trade Performance; Uncovered Interest Parity; Maintained Exchange Rates; Value at Risk;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    This paper has been announced in the following NEP Reports:

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