Abstract
In the following thesis, we study the relationship between global uncertainty and carrytrade- generated currency excess returns in the foreign exchange market. The currency trading strategy known as a ‘carry trade’ is a well-accepted and commonly used in the foreign exchange market. The presence of risk associated with global uncertainty in carry-trade portfolios is often avoided as it may cause financial instability. From an empirical perspective, our research is based on time-series data for 28 countries over a maximum period of 34 years, using the United States (U.S.) as the reference country. Portfolios of excess return were generated by summing interest rate differentials and exchange returns. We made use of various newspaper-based measures of economic uncertainty as proxies to measure global uncertainty and used the bootstrap two-pass regression in the estimation...
M.Com. (Financial Economics)