Good Carry, Bad Carry

88 Pages Posted: 30 Apr 2015 Last revised: 6 Mar 2018

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

George Panayotov

Hong Kong University of Science & Technology (HKUST)

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Date Written: January 16, 2018


We distinguish between ”good” and ”bad” carry trades constructed from G-10 currencies. The good trades exhibit higher Sharpe ratios and sometimes positive return skewness, in contrast to the bad trades that have both substantially lower Sharpe ratios and highly negative return skewness. Surprisingly, good trades do not involve the most typical carry currencies like the Australian dollar and Japanese yen. The distinction between good and bad carry trades significantly alters our understanding of currency carry trade returns, and invalidates, for example, explanations invoking return skewness and crash risk.

Keywords: currency carry trade, currency risk factors

JEL Classification: C23, C53, G11

Suggested Citation

Bekaert, Geert and Panayotov, George, Good Carry, Bad Carry (January 16, 2018). Columbia Business School Research Paper No. 15-53, Available at SSRN: or

Geert Bekaert

Columbia Business School - Finance and Economics ( email )

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George Panayotov (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

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