NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

The Term Structure of Currency Carry Trade Risk Premia

Hanno Lustig, Andreas Stathopoulos, Adrien Verdelhan

NBER Working Paper No. 19623
Issued in November 2013, Revised in November 2018
NBER Program(s):Asset Pricing Program, Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program

Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases. The local currency term premia, which increase with the maturity, offset the currency risk premia. The time-series predictability of foreign bond returns in dollars similarly declines with the bonds' maturities. Leading no-arbitrage models in international finance cannot match the downward term structure of currency carry trade risk premia. We derive a simple preference-free condition that no-arbitrage models need to satisfy to match the carry trade risk premia on long term bonds.

download in pdf format
   (603 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19623

Users who downloaded this paper also downloaded* these:
Burnside w17278 Carry Trades and Risk
Daniel, Hodrick, and Lu w20433 The Carry Trade: Risks and Drawdowns
Ready, Roussanov, and Ward w19371 Commodity Trade and the Carry Trade: a Tale of Two Countries
Brunnermeier, Nagel, and Pedersen w14473 Carry Trades and Currency Crashes
Burnside, Eichenbaum, and Rebelo w16942 Carry Trade and Momentum in Currency Markets
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us