Research
Below are links to a few of the research papers that we have found useful in our work. The literature on “carry” is vast and these works all contain references to a wide range of additional papers.Carry as a Trading Strategy
The Carry Trade: Theory, Strategy and Risk Management
A very thorough overview of carry trading strategies from a practitioners’ perspective. Primarily focused on currency carry but the ideas, particularly the section on explaining sources of profitability, can be
Carry Trade and Systemic Risk: Why Are FX Options So Cheap?
In The Rise of Carry (Chapter 4) we document an increasing correlation between currency carry returns and equity volatility. This paper presents a more formal test of this and finds
Currency Carry
International Reserves and Swap Lines: Substitutes or Complements?
Can Fed swap lines reduce the need for other countries to accumulate dollar reserves as insurance against a crisis? Includes an interesting case study of
Covered Interest Parity Deviations: Macrofinancial Determinants
There is a large and rapidly growing literature examining the reasons that covered interest parity no longer holds. This paper is an excellent starting point
The Bank/Capital Market Nexus Goes Global
This speech by the Head of Research at the BIS gives an accessible overview of why covered interest parity no longer holds and reinforces the
The Failure of Covered Interest Rate Parity: FX Hedging Demand and Costly Balance Sheets
They use similar measures to those we employ in Chapters 2 & 3 to estimate long-term demands for FX hedging, which they consider to be
Carry and the Macroeconomy
Class Politics of the Dollar System
Exceptionally clear and concise discussion of the dollar’s role in the world economy and its impact on our politics. The suggestions in the concluding section
Corporate Foreign Bond Issuance and Interfirm Loans in China
Fascinating study of how non-financial companies in China respond to the incentives to engage in carry-trades. Also illustrates how global capital market allows these companies
