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The developed market currency tango: Carry trade and hedging during 2014 – 2019. VECM and DCC approach

Soumaoro, Sekou LU (2019) NEKP01 20191
Department of Economics
Abstract
In this study carry trade activity in AUD, CAD, EUR and YEN vis the USD between 2014 – 2019 was analysed. The first approach employs a VECM, analyse evidence of carry trade recorded in the exchange rate pairs Futures, Forwards and Spot. Results show evidence of carry with the USD being the target currency, while the others being the funding currency. However, the AUD shows specific traits of carry trade in a reverse manner, since the AUD was yielding higher interest rates than USD. The second part of the analysis investigates evidence of hedging with the help of DCC, where the returns of the currency futures and S&P 500 are used, where S&P 500 represents the USD stock market. The results show evidence of YEN being used as a hedge vis the... (More)
In this study carry trade activity in AUD, CAD, EUR and YEN vis the USD between 2014 – 2019 was analysed. The first approach employs a VECM, analyse evidence of carry trade recorded in the exchange rate pairs Futures, Forwards and Spot. Results show evidence of carry with the USD being the target currency, while the others being the funding currency. However, the AUD shows specific traits of carry trade in a reverse manner, since the AUD was yielding higher interest rates than USD. The second part of the analysis investigates evidence of hedging with the help of DCC, where the returns of the currency futures and S&P 500 are used, where S&P 500 represents the USD stock market. The results show evidence of YEN being used as a hedge vis the S&P 500, while the USD shows evidence of hedging vis the AUD and CAD. The EUR case shows evidence of neither directions (Less)
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author
Soumaoro, Sekou LU
supervisor
organization
course
NEKP01 20191
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Carry trade, hedging, currency market, GARCH DCC, VECM
language
English
id
8994152
date added to LUP
2020-03-10 10:30:36
date last changed
2020-03-10 10:30:36
@misc{8994152,
  abstract     = {In this study carry trade activity in AUD, CAD, EUR and YEN vis the USD between 2014 – 2019 was analysed. The first approach employs a VECM, analyse evidence of carry trade recorded in the exchange rate pairs Futures, Forwards and Spot. Results show evidence of carry with the USD being the target currency, while the others being the funding currency. However, the AUD shows specific traits of carry trade in a reverse manner, since the AUD was yielding higher interest rates than USD. The second part of the analysis investigates evidence of hedging with the help of DCC, where the returns of the currency futures and S&P 500 are used, where S&P 500 represents the USD stock market. The results show evidence of YEN being used as a hedge vis the S&P 500, while the USD shows evidence of hedging vis the AUD and CAD. The EUR case shows evidence of neither directions},
  author       = {Soumaoro, Sekou},
  keyword      = {Carry trade,hedging,currency market,GARCH DCC,VECM},
  language     = {eng},
  note         = {Student Paper},
  title        = {The developed market currency tango: Carry trade and hedging during 2014 – 2019. VECM and DCC approach},
  year         = {2019},
}