Stats › Currencies and commodities › Carry trade
Carry's 0.99 Sharpe falls to 0.40 once you pay the spread
| Study | Sample | Universe | Mean return | Sharpe ratio |
|---|---|---|---|---|
| Lustig, Roussanov and Verdelhan, before costs | Nov 1983 to Mar 2008 | Up to 34 currencies, 9 rising to 26 | 8.83% a year | 0.99 |
| Lustig, Roussanov and Verdelhan, after bid-ask | Nov 1983 to Mar 2008 | Same, net of spreads | 4.83% a year | 0.54 |
| Lustig, Roussanov and Verdelhan, developed only | Nov 1983 to Mar 2008 | Developed currencies, net of spreads | 3.46% a year | 0.40 |
| Burnside, Eichenbaum and Rebelo, equally weighted carry | Feb 1976 to Dec 2010 | 20 currencies against the dollar | 4.6% a year | 0.89 |
| Burnside, Eichenbaum and Rebelo, equally weighted momentum | Feb 1976 to Dec 2010 | 20 currencies against the dollar | 4.5% a year | 0.62 |
| Burnside, Carry Trades and Risk, equally weighted carry | Jan 1976 to Oct 2010 | The euro plus 20 countries | 4.58% a year, sd 5.1% | 0.903 |
| Brunnermeier, Nagel and Pedersen, 3 long 3 short | 1986 to 2006 | 8 developed currencies vs the dollar | 1.8% a quarter | 0.784, quarterly data |
| US stock market, Burnside, Eichenbaum and Rebelo's comparison | Feb 1976 to Dec 2010 | US equities, excess return | 6.5% a year, sd 15.7% | 0.41 |
| US stock market, Burnside's comparison | Jan 1976 to Oct 2010 | US equities, excess return | 6.34% a year | 0.403 |
Sources: Lustig, Roussanov and Verdelhan, Common Risk Factors in Currency Markets; Burnside, Eichenbaum and Rebelo, April 2011; Burnside, NBER 17278; Brunnermeier, Nagel and Pedersen, NBER 14473. The Brunnermeier row's Sharpe is on quarterly data and is not comparable to the annualised figures.
Borrowing in a low rate currency and lending in a high rate one has paid for most of fifty years. The best known Sharpe ratio of 0.99 becomes 0.54 after bid-ask spreads and 0.40 in developed currencies alone. The trade also dies violently.
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