Is carry-trade a viable alternative asset class?

The currency carry-trade, which consists of selling low-yielding currencies and investing in high-yielding currencies, has the potential to be a new alternative asset class in the asset allocation decision. Using the Sharpe ratio and other performance measures, carry-trade displays noticeable characteristics (particularly low volatility) that improve portfolio performance when added to a portfolio and when used for replacing other alternative asset classes. Results also indicate that carry-trade enhanced portfolio performance during the recent financial crisis. Individual investors can readily use carry-trade in asset allocation with an exchange-traded fund.