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Carry trade and forward premium puzzle from the perspective of a safe‐haven currency
Author(s) -
Haab David R.,
Nitschka Thomas
Publication year - 2020
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12455
Subject(s) - economics , currency , carry (investment) , exchange rate , liberian dollar , us dollar , monetary economics , safe haven , profitability index , interest rate parity , sample (material) , haven , foreign exchange market , international economics , macroeconomics , finance , chemistry , mathematics , chromatography , combinatorics
Swiss franc exchange rates exhibit safe‐haven characteristics, which suggest a close link between the forward premium puzzle and profitability of the carry trade. Our analysis of Swiss franc exchange rates shows that the two phenomena are distinct from each other, thus corroborating U.S. dollar evidence. Persistent exposures to two different global shocks drive the two phenomena in Swiss franc exchange rates. Moreover, we find significant links between expected average Swiss franc exchange rate changes and macroeconomic conditions during the period of the minimum Swiss franc exchange rate against the euro, but not during the rest of the sample period.