International interest rate arbitrage: Study on a novel strategy

IF 7.5 1区 经济学 Q1 BUSINESS, FINANCE International Review of Financial Analysis Pub Date : 2024-11-01 DOI:10.1016/j.irfa.2024.103705
Wei Wu , Zhuoran Li , Xuan Feng
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Abstract

This study examines the time-varying excess returns in an international interest rate arbitrage (IIRA) strategy, with a particular emphasis on these excess returns. Unlike traditional carry strategies that typically match funding and investment bonds' maturities or currencies, our novel IIRA strategy is a dynamically adjusted approach involves funding with a 1-year low-yield treasury bond while investing in 2- to 10-year high-yield bonds in foreign currencies. An analysis of Sharpe ratios, foreign exchange (FX), and yield excess return shows variations in the joint expectations hypothesis of the term structure (EHTS) and the uncovered interest rate parity (UIRP) lead to profits. However, the international strategies perform worse than the domestic carry strategies. Predictive factors, such as the Cochrane–Piazzesi, show limited effectiveness due to FX volatility. Therefore, future studies should examine more predictability factors.
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国际利率套利:新型策略研究
本研究探讨了国际利率套利(IIRA)策略中随时间变化的超额收益,并特别强调了这些超额收益。传统的套利策略通常会匹配资金和投资债券的期限或币种,而我们新颖的 IIRA 策略则不同,它是一种动态调整的方法,包括以 1 年期低收益国债作为资金,同时投资于 2 至 10 年期的外币高收益债券。对夏普比率、外汇(FX)和收益率超额回报的分析表明,期限结构联合预期假说(EHTS)和无覆盖利率平价(UIRP)的变化会带来利润。然而,国际策略的表现不如国内套利策略。由于外汇波动,Cochrane-Piazzesi 等预测因素的有效性有限。因此,未来的研究应考察更多的预测因素。
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来源期刊
CiteScore
10.30
自引率
9.80%
发文量
366
期刊介绍: The International Review of Financial Analysis (IRFA) is an impartial refereed journal designed to serve as a platform for high-quality financial research. It welcomes a diverse range of financial research topics and maintains an unbiased selection process. While not limited to U.S.-centric subjects, IRFA, as its title suggests, is open to valuable research contributions from around the world.
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