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

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We apply the concept of carry, which has been studied almost exclusively in currency markets, to any asset. A security’s expected return is decomposed into its “carry,” an ex-ante and model-free characteristic, and its expected price appreciation. Carry predicts returns cross-sectionally and in time series for a host of different asset classes, including global equities, global bonds, commodities, US Treasuries, credit, and options. Carry is not explained by known predictors of returns from these asset classes, and it captures many of these predictors, providing a unifying framework for return predictability. We reject a generalized version of Uncovered Interest Parity and the Expectations Hypothesis in favor of models with varying risk premia, in which carry strategies are commonly exposed to global recession, liquidity, and volatility risks, though none fully explains carry’s premium.
Original languageEnglish
JournalJournal of Financial Economics
Issue number2
Pages (from-to)197-225
Number of pages29
Publication statusPublished - Feb 2018

Bibliographical note

Published online: 21 November 2017


  • Carry trade
  • Predictability
  • Stocks
  • Bonds
  • Currencies
  • Commodities
  • Corporate bonds
  • Options
  • Liquidity risk
  • Volatility risk

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