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This paper examines the profitability of using an emerging country, currency that is pegged to the U.S. dollar in carry trade against floating currencies. It also examines the effect of embedding forecasting techniques in its profitability and risk-adjusted returns. While carry trade is performed largely with currencies that adapt a floating exchange rate system, conducting such a strategy using pegged currency has proven to be very rewarding, especially when the strategy is enhanced with forecasting methods. Carry trade is a speculative strategy where carry traders take advantage of interest rate differential between two currencies. It is conducted by borrowing a low interest rate currency and investing in a high interest rate currency. According to uncovered interest parity (UIP), carry trade should not yield any profit. If investors are both rational and risk-neutral, then exchange rate changes will eliminate any gains arising from the differential in interest rate. But literature has shown that UIP does not hold. This failure has led to unprecedented returns for that strategy matching the returns of the S&P 500 and outperforming it in terms of Sharpe ratio.
This study contributes to the existing literature on carry trade by examining the feasibility of using pegged currencies in such strategy. This study is one of the few studies which has investigated the effect of embedding forecasting methods in the selection process and its effect on return, risk and risk-adjusted returns.
The Lead-Lag Relationships between Construction Investment and GDP: Granger Causality Tests and Impulse Responses Using Japanese Data
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This paper analyzes the lead-lag relationships between construction investment and GDP at business-cycle frequency by the tests of Granger causality and the impulse responses in the framework of the vector autoregression, using the annual Japanese data. The analysis find that private construction investment tends to lead GDP, not vice versa, in the Granger sense and is of value in predicting the course of GDP one year ahead. Government construction investment, on the other hand, tends to lag GDP.
This study is one of very few studies which have investigated empirically whether construction investment preceded the economic growth in business-cycle frequency within the methodological framework of Granger causality.