ORIGINAL ARTICLE
The role of asymmetry and dynamics in carry trade and general financial markets
Chang-Che Wu,
MeiChi Huang,
Chih-Chiang Wu,
Chang-Che Wu
College of Business, Yango University, Fuzhou, China
Search for more papers by this authorMeiChi Huang
Department of Business Administration, National Taipei University, New Taipei City, Taiwan
Search for more papers by this authorCorresponding Author
Chih-Chiang Wu
Discipline of Finance, College of Management, Yuan Ze University, Taoyuan, Taiwan
Correspondence
Chih-Chiang Wu, Discipline of Finance, College of Management, Yuan Ze University, 135 Yuan-Tung Road, Chungli, Taoyuan, Taiwan 320.
Email: chihchiang@saturn.yzu.edu.tw
Search for more papers by this authorChang-Che Wu,
MeiChi Huang,
Chih-Chiang Wu,
Chang-Che Wu
College of Business, Yango University, Fuzhou, China
Search for more papers by this authorMeiChi Huang
Department of Business Administration, National Taipei University, New Taipei City, Taiwan
Search for more papers by this authorCorresponding Author
Chih-Chiang Wu
Discipline of Finance, College of Management, Yuan Ze University, Taoyuan, Taiwan
Correspondence
Chih-Chiang Wu, Discipline of Finance, College of Management, Yuan Ze University, 135 Yuan-Tung Road, Chungli, Taoyuan, Taiwan 320.
Email: chihchiang@saturn.yzu.edu.tw
Search for more papers by this authorAbstract
This study investigates asymmetric dependence and its dynamics across returns to carry trades, stocks, and bonds using a copula-based model. We show evidence for a significant increase in carry trade-stock dependence and substantially negative carry trade-bond and stock-bond comovements since the 2007–2008 global financial crisis. We also assess the out-of-sample predictability of dependence in the context of asset-allocation strategies, and find that risk-averse investors obtain significant economic values by incorporating asymmetry and dynamics into dependence timing, particularly in the 2007–2008 crisis. These findings provide new implications for asset-allocation strategies and risk management during turbulent market phases.
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