@article {Baghdadabad73, author = {Mohammadreza Tavakoli Baghdadabad and Girijasankar Mallik}, title = {Global Risk Co-Moments and Carry Trade Strategy}, volume = {27}, number = {4}, pages = {73--99}, year = {2018}, doi = {10.3905/jfi.2018.27.4.073}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The authors examine the relation between two global risk factors of co-skewness and co-kurtosis and the cross-section of currency excess returns arising from well-known strategies that borrow in currencies with low interest rates and invest in currencies with high interest rates{\textemdash}so-called carry trades. These global factors are constructed by distinguishing between U.S.-specific and global components of the market return. The authors find that currencies with high interest rates are negatively related to global co-skewness and thus deliver low returns in times of unexpected high global co-skewness, during which time currencies with low interest rates can provide a hedge by yielding positive returns. Their findings show that global co-skewness and co-kurtosis are key drivers of risk premia in exchange markets and are robust to various checks.TOPICS: Fixed income and structured finance, analysis of individual factors/risk premia, statistical methods}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/27/4/73}, eprint = {https://jfi.pm-research.com/content/27/4/73.full.pdf}, journal = {The Journal of Fixed Income} }