The University of Southampton
University of Southampton Institutional Repository

The profitability of carry trades

The profitability of carry trades
The profitability of carry trades
The uncovered interest parity (UIP) condition suggests that carry trades whereby investors borrowin the lowinterest rate currency and invest in the high interest rate currency should not result in excess profits over the long run. In this paper, we test the significance of the conventional empirical failure of UIP condition. Using the four bilateral pound parities we fail to detect significant excess carry trade profits for the yen, euro and swiss franc–pound parities. The only parity for which the carry trade consistently makes excess profits is the dollar–pound parity. This result is somewhat surprising as this is the currency pair with the lowest interest rate differential
231-241
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Pilbeam, Keith
9a971256-9582-4b70-b6a8-bcafe7982218
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Pilbeam, Keith
9a971256-9582-4b70-b6a8-bcafe7982218

Olmo, Jose and Pilbeam, Keith (2009) The profitability of carry trades. Annals of Finance, 5 (2), 231-241. (doi:10.1007/s10436-008-0098-2).

Record type: Article

Abstract

The uncovered interest parity (UIP) condition suggests that carry trades whereby investors borrowin the lowinterest rate currency and invest in the high interest rate currency should not result in excess profits over the long run. In this paper, we test the significance of the conventional empirical failure of UIP condition. Using the four bilateral pound parities we fail to detect significant excess carry trade profits for the yen, euro and swiss franc–pound parities. The only parity for which the carry trade consistently makes excess profits is the dollar–pound parity. This result is somewhat surprising as this is the currency pair with the lowest interest rate differential

Text
10.1007%2Fs10436-008-0098-2_LI=true - Other
Download (36kB)

More information

Published date: March 2009
Organisations: Economics

Identifiers

Local EPrints ID: 348562
URI: http://eprints.soton.ac.uk/id/eprint/348562
PURE UUID: ed7b0e56-335d-4a17-a675-a6f513c9a3c8
ORCID for Jose Olmo: ORCID iD orcid.org/0000-0002-0437-7812

Catalogue record

Date deposited: 15 Feb 2013 10:32
Last modified: 15 Mar 2024 03:46

Export record

Altmetrics

Contributors

Author: Jose Olmo ORCID iD
Author: Keith Pilbeam

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×