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A Proposal to Boost the Profitability of Carry Trade

    https://doi.org/10.1142/S0219091513500252Cited by:1 (Source: Crossref)

    It is demonstrated that carry trade can be made more profitable by taking into account the drift factor in the random walk behavior of the underlying exchange rate if it is significant. By using four currency combinations we find the drift factor to be significant at horizons longer than one month and that if it is taken into account, the outcome of carry trade improves in terms of risk-adjusted return. The results and conclusions are consistent whether the exercise is conducted within-sample or out of-sample.

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