The Effect of Political Risk on Currency Carry Trades
10 Pages Posted: 23 Feb 2016
Date Written: 2016
This paper explores the risk profile of individual currency carry trades. Findings indicate that carry trade profitability depends on a country’s political risk, supporting the risk-based view on forward bias. Political risk effect originates as a component of government actions and is more pronounced in emerging economies and in countries with high interest differentials.
Keywords: Political Risk, Carry Trades, Forward Premium Puzzle
JEL Classification: F31, G15
Suggested Citation: Suggested Citation