This paper investigates the importance of commodity prices for the returns of currency carry trade portfolios. We adopt a recently developed empirical factor model to capture commodity commonalities and heterogeneity. Agricultural material and metal price risk factors are found to have explanatory power on the cross-section of currency returns, while commodity common and oil factors do not. Although stock market risk is strongly linked to currencies in developed countries, the agricultural material factor is more important for emerging currencies compared to the stock market factor. This suggests that emerging currencies are somewhat segmented from a common financial market shock.
- Commodity price
- Currency carry trade
- Emerging currencies
- Factor model
- Hierarchical model
ASJC Scopus subject areas
- Economics and Econometrics
FingerprintDive into the research topics of 'Carry trades and commodity risk factors'. Together they form a unique fingerprint.
- School of Social Sciences, Edinburgh Business School - Professor
- School of Social Sciences - Professor
- Research Centres and Themes, The Spatial Economics and Econometrics Centre - Professor
- Research Centres and Themes, Energy Academy - Professor
Person: Academic (Research & Teaching)