Christopher Balding, Andros Gregoriou, Domenico Tarzia, Xiao Zhang
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Carry Trade Dynamics Under Capital Controls: The Case of China
Despite an attractive interest rate differential between China and foreign countries, existing capital control might prevent currency carry trade strategies to be executed. We focus on the copper market to study if trades are taken in order to execute carry trade strategies. We find that copper value is related to carry trade through the onshore-offshore interest differential, while the pegged nature of the USD/CNY exchange rate makes traders indifferent to the forward risk premium. We rule out the possibility of high average payoff due to peso problems, because risk factors are insignificant, implying that carry traders are either fully hedged on FX risks, or they are unconcerned about FX risks.
期刊介绍:
The current remarkable growth in the Asia-Pacific financial markets is certain to continue. These markets are expected to play a further important role in the world capital markets for investment and risk management. In accordance with this development, Asia-Pacific Financial Markets (formerly Financial Engineering and the Japanese Markets), the official journal of the Japanese Association of Financial Econometrics and Engineering (JAFEE), is expected to provide an international forum for researchers and practitioners in academia, industry, and government, who engage in empirical and/or theoretical research into the financial markets. We invite submission of quality papers on all aspects of finance and financial engineering.
Here we interpret the term ''financial engineering'' broadly enough to cover such topics as financial time series, portfolio analysis, global asset allocation, trading strategy for investment, optimization methods, macro monetary economic analysis and pricing models for various financial assets including derivatives We stress that purely theoretical papers, as well as empirical studies that use Asia-Pacific market data, are welcome.
Officially cited as: Asia-Pac Financ Markets