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Title: The analysis of volatility transmission mechanism among carry trade currencies
Authors: Tokat, Ekin
Murat, Atılım
Tokat, Hakkı Arda
Keywords: Yen Carry Trade
Volatility Spillover
Multivariate GARCH
Asymmetric Shock
Issue Date: 2014
Publisher: Bilgesel Yayıncılık San & Tıc Ltd
Source: Tokat, E., Murat, A., & Tokat, H. A. (2014). The analysis of volatility transmission mechanism among carry trade currencies. Iktisat Isletme ve Finans, 29(335), 23-44.
Abstract: Investors take the advantage of disequilibrium in spot and forward exchange markets by investing in higher yield currency on a covered basis. An alternative of covered interest arbitrage is uncovered interest arbitrage (UIA) in which investors choose to remain uncovered accepting the currency risk. The "yen carry trade" is known as a longstanding application of UIA. Owing to Japanese low interest rates, yen carry trade has been a highly profitable strategy which involves borrowing in yen to buy higher yielding assets. Employing multivariate GARCH modeling, we examine the volatility transmission mechanism between the exchange rates involved in "yen carry trade". Due to high impact of Lehman Brothers' collapse on world financial markets, we rather do the analysis for both before and after the default. Results reveal that interactions between the exchange rates increase considerably in response to negative market shocks. Our findings present new cross-hedging opportunities for investors.
ISSN: 1300-610X
Appears in Collections:İşletme Bölümü / Department of Management
Uluslararası Girişimcilik Bölümü / Department of International Entrepreneurship
WoS İndeksli Yayınlar Koleksiyonu / WoS Indexed Publications Collection

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