Time-varying risk aversion and the profitability of carry trades : evidence from the cross-quantilogram

dc.contributor.authorDemirer, Riza
dc.contributor.authorGupta, Rangan
dc.contributor.authorHassani, Hossein
dc.contributor.authorHuang, Xu
dc.date.accessioned2021-06-23T12:47:49Z
dc.date.available2021-06-23T12:47:49Z
dc.date.issued2020-03
dc.description.abstractThis paper examines the predictive power of time-varying risk aversion over payoffs to the carry trade strategy via the cross-quantilogram methodology. Our analysis yields significant evidence of directional predictability from risk aversion to daily carry trade returns tracked by the Deutsche Bank G10 Currency Future Harvest Total Return Index. The predictive power of risk aversion is found to be stronger during periods of moderate to high risk aversion and largely concentrated on extreme fluctuations in carry trade returns. While large crashes in carry trade returns are associated with significant rises in investors’ risk aversion, we also found that booms in carry trade returns can be predicted at high quantiles of risk aversion. The results highlight the predictive role of extreme investor sentiment in currency markets and regime specific patterns in carry trade returns that can be captured via quantile-based predictive models.en_ZA
dc.description.departmentEconomicsen_ZA
dc.description.librarianpm2021en_ZA
dc.description.urihttp://www.mdpi.com/journal/economiesen_ZA
dc.identifier.citationDemirer, Riza; Gupta, Rangan; Hassani, Hossein; Huang, Xu. 2020. "Time-Varying Risk Aversion and the Profitability of Carry Trades: Evidence from the Cross-Quantilogram" Economies 8, no. 1: 18. https://doi.org/10.3390/economies8010018.en_ZA
dc.identifier.issn2227-7099 (online)
dc.identifier.other10.3390/economies8010018
dc.identifier.urihttp://hdl.handle.net/2263/80583
dc.language.isoenen_ZA
dc.publisherMDPIen_ZA
dc.rights© 2020 by the authors. Licensee: MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).en_ZA
dc.subjectQuantileen_ZA
dc.subjectCorrelogramen_ZA
dc.subjectDependenceen_ZA
dc.subjectPredictabilityen_ZA
dc.subjectTime-varying risk aversionen_ZA
dc.subjectCross-quantilogramen_ZA
dc.subjectCarry trade strategyen_ZA
dc.subjectPayoffsen_ZA
dc.titleTime-varying risk aversion and the profitability of carry trades : evidence from the cross-quantilogramen_ZA
dc.typeArticleen_ZA

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