Carry trade yields 5% annual returns
Cash from carry (with caveats)
Borrowing in low interest rate currencies and lending in high interest rate currencies – a trading strategy termed ‘carry trade’ – has generated surprisingly large returns for decades. In this article, we provide empirical evidence that these returns can be understood simply as compensation for risk, and specifically for volatility risk. High interest rate currencies are negatively related to shocks in global foreign exchange volatility and therefore deliver low returns in times of unexpected
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