Burnside, Craig; Eichenbaum, Martin; Kleshchelski, Isaac; … - C.E.P.R. Discussion Papers - 2008
Currencies that are at a forward premium tend to depreciate. This `forward-premium puzzle' is an egregious deviation from uncovered interest parity. We document the properties of the carry trade, a currency speculation strategy that exploits this anomaly. This strategy consists of borrowing...