Thread: Carry Trade ETF
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Old 06-05-2007, 11:48 PM
Jeff W Jeff W is offline
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Join Date: May 2004
Posts: 7,079
Default Re: Carry Trade ETF

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just holding the ETF can't be pluuuuus eeee veeeee lol.

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The idea behind the ETF is that it is a +EV long term holding based on the forward premium anomaly:

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Empirical evidence shows that currencies that are at a forward premium and that, correspondingly, have a low interest rate, actually tend, on average, to depreciate, not appreciate, as the theory of interest parity conditions predicts. Similarly, currencies that are at a forward discount and that, correspondingly, have a high interest rate, tend, on average, to appreciate, not depreciate. This anomaly, then, implies that an investor who enters a carry trade is quite likely to make predictable profits from two sources: the interest rate differential between two currencies and the appreciation of the high-interest-rate currency that was originally bought at a forward discount.

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Bull [censored] statistical artifact? Maybe--I sure don't know the answer. I'm certainly not going to invest in this ETF, but I thought it would be worth discussing.
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