The asymmetry in carry trade and the U.S. dollar

• Main Authors: Chang-Che Wu, 吳昌哲
• Other Authors: Chih-Chiang Wu
• Format: Others
• Language: en_US
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/f8jfp7

博士 === 元智大學 === 管理學院博士班 === 106 === We employed copula-based GJR-GARCH models to investigate the dependence structure between the carry trade and the U.S. dollar returns. The marginal is modeled by the GJR-GARCH process, and dynamic copulas (Gaussian, Student-t, and skewed-t) are adopted to capture the dependence characteristics (i.e. tail dependence, asymmetry, and time-varying). Empirical results indicate some important findings. First, during the 2007-2008 global financial crisis, the U.S. dollar becomes a safe haven against the carry trade movement and provides a protection for the carry trade investors to avoid the crash risk. Second, we demonstrate that the improvement in dependence characteristics modeling is statistically and economically significant. Third, the dynamic skewed-t copula provides the largest economic value in all selected strategies. Even though we control the transaction cost problem, less risk-averse investors still prefer to choose dynamic correlation strategies. Our finding provides important financial implication for currency investors in asset allocation and risk management.