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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title Contrarian Carry Trade Strategy and Volatility
Organization Unit
Authors
  • Jannik Brunner
Supervisors
  • Thorsten Hens
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 64
Date November 2018
Abstract Text In this thesis a contrarian carry trade strategy, acting on the precedent spot return as a carry signal, is constructed and evaluated. The evaluation of the performance shows that the strategy is profitable in-sample, but not out-of-sample and exhibits statistical characteristics which are uncommon for the carry trade. I conduct a cross-sectional foreign exchange regression and find that the precedent spot return is a valid and statistically significant predictor of future excess returns. The compiled volatility indi- cators can be used as a carry signal which yields less profitable strategies. I find empirical evidence that portfolio returns regressed on the volatility indicators have small betas, are statistically significant while they lack explanatory power. Carry signal diversification improves the overall performance and the risk-adjusted returns of the contrarian carry trade strategy and closing out the carry exposure conditional on volatility indicators results in a greater or equal Sharpe ratio.
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