TY  - JOUR
AU  - Berge, Travis J
AU  - Jordà, Òscar
AU  - Taylor, Alan M
TI  - Currency Carry Trades
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16491
PY  - 2010
Y2  - October 2010
DO  - 10.3386/w16491
UR  - http://www.nber.org/papers/w16491
L1  - http://www.nber.org/papers/w16491.pdf
N1  - Author contact info:
Travis Berge
E-Mail: travis.j.berge@frb.gov

Òscar Jordà
Economic Research, MS 1130
Federal Reserve Bank of San Francisco
San Francisco, CA 94105
E-Mail: oscar.jorda@gmail.com

Alan M. Taylor
Department of Economics and
Graduate School of Management
University of California
One Shields Ave
Davis, CA 95616-8578
Tel: (530) 752-0741
Fax: (530) 752-9382
E-Mail: amtaylor@ucdavis.edu
M1  - published as Travis Berge, Òscar Jordà, Alan M. Taylor. "Currency Carry Trades," in Richard Clarida and Francesco Giavazzi, organizers, "NBER International Seminar on Macroeconomics 2010" University of Chicago Press (2011)

AB  - A wave of recent research has studied the predictability of foreign currency returns. A wide variety of forecasting structures have been proposed, including signals such as carry, value, momentum, and the forward curve. Some of these have been explored individually, and others have been used in combination. In this paper we use new econometric tools for binary classification problems to evaluate the merits of a general model encompassing all these signals. We find very strong evidence of forecastability using the full set of signals, both in sample and out-of-sample. This holds true for both an unweighted directional forecast and one weighted by returns. Our preferred model generates economically meaningful returns on a portfolio of nine major currencies versus the U.S. dollar, with favorable Sharpe and skewness characteristics. We also find no relationship between our returns and a conventional set of so-called risk factors.
ER  -