Carry trade: The gains of diversification
Abstract
Market participants routinely take advantage of the failure of uncovered interest
rate parity to speculate in currency markets. Perhaps the most widely used currency
speculation strategy is the carry trade. In this article we take the perspective of
an individual currency trader and document the gains to diversifying the carry trade
across different currencies. We show that these gains are large. Diversification boosts
the typical Sharpe ratio by over 50%. © 2008 by the European Economic Association.
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https://hdl.handle.net/10161/2587Published Version (Please cite this version)
10.1162/JEEA.2008.6.2-3.581Publication Info
Burnside, C; Eichenbaum, M; & Rebelo, S (2008). Carry trade: The gains of diversification. Journal of the European Economic Association, 6(2-3). pp. 581-588. 10.1162/JEEA.2008.6.2-3.581. Retrieved from https://hdl.handle.net/10161/2587.This is constructed from limited available data and may be imprecise. To cite this
article, please review & use the official citation provided by the journal.
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