Leveraged Carry Trade Portfolios

Darvas, Ζsolt

doi:10.2139/ssrn.1102151

Cited by 5 publications

(5 citation statements)

References 8 publications

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“…In fact, due to the leverage invariance property of the Sharpe ratio, and taking the ex post results obtained by this strategy, we found that it could have been implemented in the period with much higher leverage. Such leverage may be comparable to the examples by Darvas (2008) in his reflection on optimal leverage in dollar-based speculative carry portfolios. It is not impossible that during the sample period a non-trivial number of agents have been pushed to develop such strategies, which could have compromised the integrity of the market and the financial stability of Brazilian real denominated assets.…”

Section: Discussionsupporting

confidence: 61%

Exchange policy credibility through the lens of the carry trade: The Mexican peso and the Brazilian real.

et al. 2018

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Exchange credibility is a valuable asset for currency policymakers. In this article we intend to analyse exchange credibility from the perspective of carry trade speculators. Global speculators' access to shadow banking financing allows them to build dynamic carry trade strategies that are a source of potential financial instability. Our view is that the existence of dynamic carry trade opportunities offers a tool for monitoring how market participants asses the credibility of exchange policies. We use the long term performance of different carry trade dynamic specifications to understand how different is the market view of exchange policy credibility in the case of two leading Latin America countries, Mexico and Brazil. Our empirical research covers data from May of 2000 to May 2018. In light of the evidence presented, we recognize that Mexican peso exchange policy is considered credible but Brazilian real exchange policy is not considered credible during the sample period.

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Section: Discussionsupporting

confidence: 61%

Exchange policy credibility through the lens of the carry trade: The Mexican peso and the Brazilian real.

et al. 2018

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“…In Subsection 4.2.1, we examine whether WM/R spreads overestimate the cost of trading, and we show that this is generally true for small trades, like $1 million, but not for larger trades. Many other studies have used WM/R spreads to proxy for transaction costs (e.g., Darvas, 2009;Banti et al, 2012;Della Corte et al, 2016;Maurer et al, 2019).…”

Section: Wm/r Spreadsmentioning

confidence: 99%

Retaining alpha: The effect of trade size and rebalancing frequency on FX strategy returns

Melvin

Pan

Wikstrom³

2020

Journal of Financial Markets

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The literature on currency investing that incorporates transaction costs uses costs relevant for small trade sizes. Using the entire order book of the major electronic brokerages for FX, we compute sweep-to-fill costs for trades of different sizes and illustrate the reduction in post-cost returns as trade size increases. Researchers should consider trade size and frequency to create realistic forecasts of post-tcost returns to gauge the capacity of a strategy. We show how incorporating tcosts in the construction of a portfolio improves performance for both high and low frequency strategies and retains a larger portion of the alpha. JEL-Codes: G150, F310.

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“…(2008), enflasyon riskinin yüksek faiz oranlı para birimlerinde daha büyük olduğunu ifade etmişler ve ara kazanç ticareti faaliyetinden elde edilen getiriler ile hedge fon endeksleri arasında pozitif bir ilişki olduğunu göstermişlerdir. Darvas (2009), kaldıraç düzeyinin ara kazanç ticaretine ilişkin aşırı getiriler için önem taşıdığını ve kaldıraç düzeyinin artmasının kârlılığı azalttığını tespit etmişlerdir. Lustig vd.…”

Section: Literatürunclassified

Effects of Capital Flows on Carry Trade Activities: The Case of Turkey

Gacener-Atiş

Erer²

2019

Sosyoekonomi

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Carry trade is described as the capital flow coming into a country based on interest rate differential. A negative change in capital flow affects carry trade activities negatively, which in turn distorts particually the exchange rate and the financial stability of a country. In order to examine the effects of capital flows on carry trade in Turkey for different states of its economy (e.g. contraction or expansion) between January 2005 and April 2018, Markov Switching Vector Autoregressive Model (MSVAR) is employed. According to the findings, an increase in capital flows in the previous period enhances carry trade activity in the current period when expansion regime is in effect. However, for the contraction regime, no evidence is found toward a significant relationship between carry trade and capital flows. Moreover, it is seen that exchange rate uncertainty is considered as an important risk factor by investors in contraction periods when risk aversion levels of investors are high. ÖzAra kazanç ticareti, bir ülkeye faiz oranı farkına bağlı olarak giren sermaye akımlarıdır. Bu akımlardaki olumsuz gelişmeler, ara kazanç ticaretinin ani bir şekilde tersine dönmesine neden olmakta; bu ise başta döviz kurları olmak üzere finansal istikrarı olumsuz yönde etkilemektedir. Bu doğrultuda, çalışmada, Türkiye'de Ocak 2005-Nisan 2018 döneminde gerçekleşen sermaye akımlarının ara kazanç ticareti faaliyeti üzerindeki etkileri, Markov Rejim Değişimi Vektör Otoregresif Model (MSVAR) yöntemi kullanılarak ekonominin genişleme ve daralma gibi farklı ekonomik konjonktürleri için belirlenmiş ve ekonomik rejimler arasındaki fark ortaya konulmuştur. Çalışmanın bulgularına göre, ekonomi genişleme döneminde iken, bir önceki dönem sermaye akımlarında meydana gelen artışın cari dönemde ara kazanç ticareti faaliyetini artırdığı; ekonomi daralma döneminde iken, sermaye akımlarının ara kazanç ticareti faaliyeti üzerinde anlamlı bir etkisinin olmadığı bulgusuna ulaşılmıştır. Ayrıca, yatırımcıların riskten kaçınma düzeylerinin yüksek 1 Bu çalışma, Ege Üniversitesi Bilimsel Araştırma Projeleri Koordinasyon Birimi tarafından desteklenen 16-İKT-003 no'lu bilimsel araştırma projesinden türetilmiştir.

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Leveraged Carry Trade Portfolios

Cited by 5 publications

References 8 publications

Exchange policy credibility through the lens of the carry trade: The Mexican peso and the Brazilian real.

Exchange policy credibility through the lens of the carry trade: The Mexican peso and the Brazilian real.

Retaining alpha: The effect of trade size and rebalancing frequency on FX strategy returns

Effects of Capital Flows on Carry Trade Activities: The Case of Turkey

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