NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Peso Problems Explain the Returns to the Carry Trade?

A. Craig Burnside, Martin S. Eichenbaum, Isaac Kleshchelski, Sergio Rebelo

NBER Working Paper No. 14054
Issued in June 2008
NBER Program(s):   AP   EFG   IFM   ME

We study the properties of the carry trade, a currency speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs which are on average large and uncorrelated with traditional risk factors. We argue that these payoffs reflect a peso problem. The underlying peso event features high values of the stochastic discount factor rather than very large negative payoffs.

download in pdf format
   (491 K)

email paper

This paper is available as PDF (491 K) or via email.

This paper was revised on December 5, 2011

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14054

Published: Craig Burnside & Martin Eichenbaum & Isaac Kleshchelski & Sergio Rebelo, 2011. "Do Peso Problems Explain the Returns to the Carry Trade?," Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 853-891. citation courtesy of

Users who downloaded this paper also downloaded these:
Burnside w17278 Carry Trades and Risk
Burnside, Eichenbaum, and Rebelo w16942 Carry Trade and Momentum in Currency Markets
Burnside, Eichenbaum, and Rebelo w12916 The Returns to Currency Speculation in Emerging Markets
Brunnermeier, Nagel, and Pedersen w14473 Carry Trades and Currency Crashes
Clarida, Davis, and Pedersen w15523 Currency Carry Trade Regimes: Beyond the Fama Regression
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us