Determinants of carry trades in Central and Eastern Europe
The article shows that carry trades to Central and Eastern Europe (CEE) were lucrative during the boom period 2004–2006 when interest rate spreads between the funding and investment currencies were high. In contrast, when liquidity risk and exchange rate volatility increased after
2007, carry trades were unprofitable. The analysis further suggests that there is a link between the exchange rate regime and carry trade returns. Overall, exchange rate stabilization, particularly via managed floats, seems to go along with the highest profit opportunities.
Keywords: E44; F31; carry trades; emerging markets; exchange rates
Document Type: Research Article
Affiliations: Institute for Economic Policy, University of Leipzig, Grimmaische Str. 12Leipzig D-04109, Germany
Publication date: 01 September 2012
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