Carry

Ralph S.J. Koijen, Tobias J. Moskowitz, Lasse Heje Pedersen, Evert B. Vrugt

Research output: Working paperResearch

Abstract

A security's expected return can be decomposed into its "carry" and its expected price appreciation, where carry can be measured in advance without an asset pricing model. We find that carry predicts returns both in the cross section and time series for a variety of different asset classes that include global equities, global bonds, currencies, commodities, US Treasuries, credit, and equity index options. This predictability underlies the strong returns to "carry trades" that go long high-carry and short low-carry securities, applied almost exclusively to currencies, but shown here to be a robust feature of many assets. We decompose carry returns into static and dynamic components and analyze the economic exposures. Despite unconditionally low correlations across asset classes, we find times when carry strategies across all asset classes do poorly, and show that these episodes coincide with global recessions.
Original languageEnglish
Place of PublicationCambridge, MA
PublisherNational Bureau of Economic Research (NBER)
Number of pages63
DOIs
Publication statusPublished - Aug 2013
SeriesNational Bureau of Economic Research. Working Paper Series
Number19325
ISSN0898-2937

Cite this

Koijen, R. S. J., Moskowitz, T. J., Heje Pedersen, L., & Vrugt, E. B. (2013). Carry. Cambridge, MA: National Bureau of Economic Research (NBER). National Bureau of Economic Research. Working Paper Series, No. 19325 https://doi.org/10.3386/w19325
Koijen, Ralph S.J. ; Moskowitz, Tobias J. ; Heje Pedersen, Lasse ; Vrugt, Evert B. / Carry. Cambridge, MA : National Bureau of Economic Research (NBER), 2013. (National Bureau of Economic Research. Working Paper Series; No. 19325).
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Koijen, RSJ, Moskowitz, TJ, Heje Pedersen, L & Vrugt, EB 2013 'Carry' National Bureau of Economic Research (NBER), Cambridge, MA. https://doi.org/10.3386/w19325

Carry. / Koijen, Ralph S.J.; Moskowitz, Tobias J.; Heje Pedersen, Lasse; Vrugt, Evert B.

Cambridge, MA : National Bureau of Economic Research (NBER), 2013.

Research output: Working paperResearch

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Koijen RSJ, Moskowitz TJ, Heje Pedersen L, Vrugt EB. Carry. Cambridge, MA: National Bureau of Economic Research (NBER). 2013 Aug. https://doi.org/10.3386/w19325