DETERMINATION OF CARRY TRADE BASED ON CAPITAL MOVEMENTS IN DIFFERENT ECONOMIC CYCLE: THE CASE OF TURKEY
Project no. 812 · Status: Kapanmış · 2016
Summary
Carry trade an arbitrage transaction which investors borrow from capital market with low interest rate and purchase any financial asset providing high return on currency with high interest rate is described as capital inflow depending on interest rate differentiation. Purpose of this study is to investigate the effects of capital movements on carry trade in Turkey over the period of Janurary 2005-April 2018 in terms of different business cycles such as recession regime or growth regime and to exhibit difference between economic regimes. For this purpose, we used MSVAR approach which allows to shift vector autoregressive model parameters in different regimes. It seems from the results at the conclusion of the study that the economy tends to stay in growth regime and it again transit into growth regime even though the economy is in recession regime. In growth regime, an increase in capital movements in previous term enhances carry trade activity in current term. However; in reccesion regime, there is not significant relationship between carry trade and capital movements. Moreover, it is seen that exchange rate uncertainty is considered as an important risk factor by investors in reccession terms when risk aversion levels of investors are high.