Research topic: carry trades

Introduction

Carry trades occur when investors borrow low-yielding currencies and lend high-yielding currencies. The usage of carry trades tends to correlate with global financial and exchange rate stability, and subsides during global liquidity shortages. Carry trades will continue to be actively pursued as long as:

  1. there are low yielding currencies available to be borrowed to finance the trade
  2. the current business cycle is perceived to be still in the expansion phase
  3. low volatility conditions prevail

As a result, retail traders can triple their trading volume in the carry trade to $11 Billion per day. The key to the end of the carry trade will be the strength of the Japanese economy and the relative weakness of the US economy, for it would take a number of interest rate increases by Japan to close the gap with the US and the UK, with a differential of about 5%; even against Europe there would be a long way to go.

Requirement

In this research project, the following needs to be investigated:

  1. What are the market conditions under which carry trades will start to emerge?
  2. What is the total volume of carry trades during a time where these conditions are present?
  3. Under what conditions do carry trades end?

Profile of candidate

The following planning is proposed, each is expected to last about 1 month:

  1. Research solution and identify options for development : draft project proposal, investigate options for solution implementation including testing guidelines and storage guidelines.
  2. Develop and implement solution , including half term presentation.
  3. Write final report , including final presentation.

Knowledge of macro-economics a plus.

Introductory knowledge of mathematical statistics a plus.

Terms and conditions

The internship needs not be developed at the office, but can be performed at the university.

An internship reimbursement is applicable.

This project is expected to last 3 months. Although full time availability is recommended, this is not a strict requirement and availability of 3 days or more per week is acceptable. The candidate should be able to manage his/her own time and regularly update Hobury on progress and issues. Both an intermediate (half term) and a final presentation will be part of this internship assignment.

Copyright of the solution remains with Hobury.