Enhanced Carry Trades - A new Approach in Asset Management and Trading

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Type and Duration

PhD-Thesis, February 2014 until February 2018 (finished)

Coordinator

Chair in Business Administration, Banking and Financial Management

Main Research

Wealth Management

Field of Research

Banking and Finance

Description

Standard carry trades sell low-yield currencies and buy high-yield currencies. The trading idea is to capture the interest rate differential between currencies. The unique selection criterion of carry trades is the corresponding yield of various currencies.
This cumulative dissertation discusses a new approach of carry trades. The approach of this dissertation expands the selection criterion by foreign exchange (FX) variation. This extension is necessary, as the FX variation is the main source of risk and the FX dynamic can ruin the profitability. Additionally, the dissertation project discusses the diversification effect of carry trades for an institutional investor and the predictability of currency returns.
The aim of this dissertation is to introduce a new carry trade strategy, which is more robust against FX risk, and to show the benefits of this carry trade strategy for an institutional investor.

Keywords

Carry trade, Diversification, Foreign exchange

PhD-Student

Dr. rer. oec. Jurij-Andrei Reichenecker, MSc UZH ETH LL.M.

Supervisor

Prof. em. Dr. Marco J. Menichetti

Co-Supervisor

Prof. Dr. Martin Wallmeier

Publications

  • Barroso, P., Reichenecker, J.-A., & Menichetti, M. (2021). Hedging with an Edge: Parametric Currency Overlay. Management Science, 68(1), 669-689. (ABDC_2022: A*; ABS_2021: 4*; FT_50_2016: yes; VHB_3: A+)

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  • Reichenecker, J. A. (2019). Diversification effect of standard and optimized carry trades. European Journal of Finance, 25(8), 745-761. (ABDC_2022: A; ABS_2021: 3; VHB_3: B)

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  • Reichenecker, J. A. (2018). Standard and optimized carry trades. International Journal of Finance & Economics, 23(3), 329-344. (ABDC_2022: B; ABS_2021: 3)

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  • Barroso, P., Menichetti, M., & Reichenecker, J.-A. (2018). Hedging with an Edge: Parametric Currency Overlay. Paper presented at the EFMA European Financial Management Association, Annual Meeting 2018, Milan.

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  • Barroso, P., Menichetti, M., & Reichenecker, J.-A. (2017). Hedging with an Edge: Parametric Currency Overlay. Presented at the 30th Australasian Finance and Banking Conference 2017, Sydney.

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  • Reichenecker, J. A. (2016). Diversification Effect of Naive and Optimized Carry Trades. Presented at the 9th International Accounting & Finance Doctoral Symposium, Glasgow, UK.

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  • Reichenecker, J. A. (2016). Diversification Effect of Naive and Optimized Carry Trades. Presented at the 9th Finance Conference of the Portuguese Finance Network, Covilhã, Portugal.

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  • Reichenecker, J. A. (2015). Naive and Optimized Carry Trades and Their Sensitivities to Interest Rates. Presented at the Southern Finance Association, Captiva Island, Florida.

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  • Reichenecker, J. A. (2015). Diversification Effect of Naive and Optimized Carry Trades. Presented at the 28th Australasian Finance and Banking Conference, Sydney, Australia.

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  • Barroso, P., Reichecker, M. R., & Reichenecker, J. A. (2019). Let the Parametric Phoenix Fly.

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  • Reichenecker, J. A., & et. al. (2017). Increasing the Discoverability of non-English Language Research Papers: A Reverse-Engineering Application of the Pitching Research Template (SSRN Electronic Journal).

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  • Reichenecker, J. A. (2014). Currency Carry Trade Portfolios and their Sensitivity to Interest Rates.

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