Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy?
This paper evaluates the performance of carry trade strategies with implied Taylor rule interest rate differentials and compares the performance statistics of them over the naive carry trade strategy with actual interest rates. Carry trade, a currency speculation strategy, between high-interest rat...
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| Format: | Article |
| Language: | English |
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EconJournals
2014-09-01
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| Series: | International Journal of Economics and Financial Issues |
| Online Access: | https://econjournals.com/index.php/ijefi/article/view/910 |
| _version_ | 1797908320174997504 |
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| author | Gokcen Ogruk |
| author_facet | Gokcen Ogruk |
| author_sort | Gokcen Ogruk |
| collection | DOAJ |
| description |
This paper evaluates the performance of carry trade strategies with implied Taylor rule interest rate differentials and compares the performance statistics of them over the naive carry trade strategy with actual interest rates. Carry trade, a currency speculation strategy, between high-interest rate and low-interest rate currencies generates high payoff on average and has a possibility of crash risk. I argue that the crash risk is reduced with implied Taylor rule interest rate differentials as a trading strategy in Yen and Franc trades for the whole sample period. During the recent financial crisis, the carry trading strategies with Taylor rule perform best in terms of mean returns, risk adjusted returns and downside risk.
Keywords: Carry Trade; Taylor Rule Fundamentals.
JEL Classifications: E32; E37; E43; F31; F37; G15.
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| first_indexed | 2024-04-10T10:52:11Z |
| format | Article |
| id | doaj.art-689842ff9c794ba1ac8a61d2008fcbeb |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T10:52:11Z |
| publishDate | 2014-09-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-689842ff9c794ba1ac8a61d2008fcbeb2023-02-15T16:20:07ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382014-09-0144Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy?Gokcen Ogruk This paper evaluates the performance of carry trade strategies with implied Taylor rule interest rate differentials and compares the performance statistics of them over the naive carry trade strategy with actual interest rates. Carry trade, a currency speculation strategy, between high-interest rate and low-interest rate currencies generates high payoff on average and has a possibility of crash risk. I argue that the crash risk is reduced with implied Taylor rule interest rate differentials as a trading strategy in Yen and Franc trades for the whole sample period. During the recent financial crisis, the carry trading strategies with Taylor rule perform best in terms of mean returns, risk adjusted returns and downside risk. Keywords: Carry Trade; Taylor Rule Fundamentals. JEL Classifications: E32; E37; E43; F31; F37; G15. https://econjournals.com/index.php/ijefi/article/view/910 |
| spellingShingle | Gokcen Ogruk Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? International Journal of Economics and Financial Issues |
| title | Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? |
| title_full | Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? |
| title_fullStr | Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? |
| title_full_unstemmed | Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? |
| title_short | Is Implied Taylor Rule Interest Rate Applicable as a Carry Trade Strategy? |
| title_sort | is implied taylor rule interest rate applicable as a carry trade strategy |
| url | https://econjournals.com/index.php/ijefi/article/view/910 |
| work_keys_str_mv | AT gokcenogruk isimpliedtaylorruleinterestrateapplicableasacarrytradestrategy |