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Carry Trade Dynamics Under Capital Controls: The Case of China

Balding, C, Gregoriou, A, Tarzia, D and Zhang, X (2023) Carry Trade Dynamics Under Capital Controls: The Case of China. Asia-Pacific Financial Markets. ISSN 1387-2834

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Despite an attractive interest rate differential between China and foreign countries, existing capital control might prevent currency carry trade strategies to be executed. We focus on the copper market to study if trades are taken in order to execute carry trade strategies. We find that copper value is related to carry trade through the onshore-offshore interest differential, while the pegged nature of the USD/CNY exchange rate makes traders indifferent to the forward risk premium. We rule out the possibility of high average payoff due to peso problems, because risk factors are insignificant, implying that carry traders are either fully hedged on FX risks, or they are unconcerned about FX risks.

Item Type: Article
Additional Information: This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use, but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at: http://doi.org/https://doi.org/10.1007/s10690-023-09441-8
Uncontrolled Keywords: 1502 Banking, Finance and Investment; Finance
Subjects: H Social Sciences > HF Commerce > HF5001 Business
H Social Sciences > HD Industries. Land use. Labor
Divisions: Liverpool Business School
Publisher: Springer Nature
SWORD Depositor: A Symplectic
Date Deposited: 27 Nov 2023 15:27
Last Modified: 27 Nov 2023 15:27
DOI or ID number: 10.1007/s10690-023-09441-8
URI: https://researchonline.ljmu.ac.uk/id/eprint/21935
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