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Author: | Jylhä, P. Suominen, M. |
Title: | Speculative capital and currency carry trades |
Journal: | Journal of Financial Economics
2011 : JAN, VOL. 99:1, p. 60-75 |
Index terms: | financial markets currency speculation trading models |
Freeterms: | hedge funds |
Language: | eng |
Abstract: | This paper examines a 2-country general equilibrium model with partially segmented financial markets, where hedge funds (henceforth as: h-fund/s) emerge endogenously. It is empirically shown that the h-fund investment strategy predicted by the model, called herein the "risk-adjusted carry trade" strategy, explains more than 16 percent of the overall h-fund index returns and more than 33 percent of the fixed income arbitrage sub-index returns. The flow of new money to h-funds affects exchange rates, market interest rates, and both the h- funds' contemporaneous and expected future returns as predicted by the model. |
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