Carry trades and commodity risk factors

Research output: Contribution to journalArticle

Abstract

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.
Original languageEnglish
Pages (from-to)121-129
Number of pages9
JournalJournal of International Money and Finance
Volume96
Early online date3 May 2019
DOIs
Publication statusPublished - Sep 2019

Fingerprint

Currency
Commodities
Risk factors
Carry trade
Factors
Stock market
Metals
Developed countries
Cross section
Financial markets
Price risk
Commodity prices
Oil
Market risk
Commonality
Market factors

Keywords

  • Commodity price
  • Currency carry trade
  • Emerging currencies
  • Factor model
  • Hierarchical model

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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Carry trades and commodity risk factors. / Byrne, Joseph P.; Ibrahim, Boulis Maher; Sakemoto, Ryuta.

In: Journal of International Money and Finance, Vol. 96, 09.2019, p. 121-129.

Research output: Contribution to journalArticle

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