Stats › Devises et matières premières › Carry crash risk
Carry trade crash risk scales with the interest differential, with an 81% R squared
Average quarterly return skewness against USD, ordered by average quarterly interest differential from highest to lowest. 1986 to 2006. The high-yielders have negative skew, the funding currencies have positive skew, and the relationship across the eight has an R squared of 81%.
Across eight currencies over twenty years, the more a currency pays in carry, the more negatively skewed its returns. The cross-sectional relationship has an R squared of 81%, and diversifying across currencies does not reduce it.
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