Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.jimonfin.2012.09.001
Title: Footprints in the market: Hedge funds and the carry trade
Authors: Fong, W.M. 
Keywords: Carry trade
Fund management
Hedge funds
Limits to arbitrage
Noise trading
Risk aversion
Issue Date: 2013
Source: Fong, W.M. (2013). Footprints in the market: Hedge funds and the carry trade. Journal of International Money and Finance 33 : 41-59. ScholarBank@NUS Repository. https://doi.org/10.1016/j.jimonfin.2012.09.001
Abstract: This paper uses a new database provided by the Commodity and Futures Trading Commissions to examine the price impact of hedge fund carry trades in " hot" and " cold" markets. We find that hedge funds significantly increase their carry trade positions during hot markets (periods with very high currency returns). Consistent with currency overpricing, positions in hot markets are followed by exchange rate reversals. Optimism in the stock market seems to have a spillover effect on hedge fund speculation in the currency market: controlling for the variance risk premium fully accounts for the reversal effect. Overall, our results add to a growing body of empirical evidence that institutional demand can move asset prices. © 2012 Elsevier Ltd.
Source Title: Journal of International Money and Finance
URI: http://scholarbank.nus.edu.sg/handle/10635/44429
ISSN: 02615606
DOI: 10.1016/j.jimonfin.2012.09.001
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