Some Motivating Facts Nelson Mark University of Notre Dame and NBER - - PowerPoint PPT Presentation

Some Motivating Facts

Nelson Mark

University of Notre Dame and NBER

Asset Pricing Course

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Equity and T-Bill Cumulated Returns

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Equity and T-Bill Cumulated Returns in logs

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Equity and T-Bill Annual Returns

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Equity, T-Bill Annual Returns, GDP, Consumption Growth

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GDP, Consumption Growth

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Connection to Stock Returns

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Predictability and Time variation

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Carry Trade

Table 1 Monthly currency excess return summary statistics (1973.04–2014.12). P1 P2 P3 P4 P5 P6 Mean Currency Excess Return 1.385 0.238 1.622 0.600 1.823 7.966 Sharpe Ratio 0.053 0.008 0.061 0.021 0.059 0.232 Mean Interest Rate Differential 2.838 1.023 0.535 2.297 4.755 17.336 Mean Exchange Rate Return 1.453 0.785 1.087 1.697 2.932 9.370

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Carry Trade

• Fig. 1. Cumulated excess return in each of the six carry portfolios. The figure shows cumulated excess return (as raw numbers) of six interest-sorted

portfolios over the US interest rate. Rolling over a USD 1 long position in P6 minus rolling over a USD 1 short position in the USD beginning in April 1973 results in a net value of 3.32 in December 2014.

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