Monday, April 07, 2008

More on the Carry Trade

In response to a previous post, a former student emails me some intriguing facts:


Wanted to note an interesting phenomenon related to your blog post on the carry trade. Attached are two screen shots from my bloomberg showing the beta of the index that ETF tracks, the Deutsche Bank G10 Currency Future Harvest Index, to the S&P 500. Note the sample over which the beta is calculated in each attachment: the first is from 04/04/07 to 04/04/08 (the last year) and the second is from 04/05/04 to 04/04/07 (the preceding 3 years). As you can see the "beta" (at least ex-post) has increased dramatically.

Of course this prompts several interesting questions. First, why has the beta risen so significantly? I'm not sure there isn't an interesting paper to be written there. Second, do you believe the risk premium has increased? The latter may be more interesting to you as you personally consider investing.

Thanks as always for fond memories of Ec 2010 and for an interesting blog.

Jesse Barnes