Yen carry trades and stock returns in target currency countries
Author(s)
Author(s)
Cheung, Y.-W.
He, A. W. W.
Date Issued
2012
Publisher
Elsevier
Journal
Japan and the World Economy
Volume
24
Issue
3
Start page
174
End page
183
Abstract
The proliferation of carry trade – a strategy of simultaneously shorting a low-yielding currency and longing a high-yielding currency raises the concern on its impact on global asset prices. In this exercise, we examine the implications of yen carry trade for stock markets in a few selected target currency countries. Three alternative proxies for carry trade activity – a currency-specific profit measure, a currency-specific futures position variable, and the Deutsche Bank G10 Currency Futures Harvest Index – are used. It is found that the three measures of carry trade display various degrees of influences on stock returns in Australia, Canada, Britain, Mexico, and New Zealand. The empirical carry trade effect is robust to the inclusion of three control variables; namely the US stock return, the VIX Index that represents market volatility, and commodity prices. Further, the estimation results suggest that the three measures of carry trade share some common information about stock returns in target currency countries.
SFU Affiliated Publication
No
Availability at SFU Library
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