RETURNS TO CARRY TRADE IN FIXED EXCHANGE RATES REGIMES / RETORNOS DE ESPECULAÇÕES CAMBIAIS EM REGIMES DE CÂMBIO CONTROLADO

AUTOR(ES)

ALFREDO BINNIE

DATA DE PUBLICAÇÃO

2008

RESUMO

The failure of uncovered interest rate parity is almost unanimous in the literature. The consequence is the existence of predictable excess returns to currency speculation. This paper documents the returns to the carry trade strategy in fixed exchange rate regimes in a set of episodes. Empirical documentation shows not only that these regimes end in abrupt depreciation but also that the depreciation generally wipes out the entire accumulated interest rate differential during all the period. This anecdotal evidence contrasts to that commonly found by uncovered interest parity tests. We identify the leading indicators to the currency crises magnitudes. We also analyze the differences in returns to the carry trade strategy by currency regimes founding that both the expected return and the downside risks are greater in fixed currency regimes.

ASSUNTO(S)

rates of interest carry trade carry trade foreign exchange crisis taxas de cambio taxas de juros crises cambiais fixed exchange rate regime

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