Author(s): Jyoti Ranjana
Carry trade with respect to Indian Rupees has been studied. Currencies included in the study are united state dollar, Great Britain Pound, Euro, Japanese Yen, Australian Dollar, Singaporean Dollar, New Zealand Dollar, Brazilian Real, Russian Rouble, Chinese Yuan and Hong Kong Dollar. The carry trade returns are stationary. Relationship of carry trade return with equity return, bond returns and commodity return has been carried out using Vector auto regression method. Equity has effect on carry trade return. The granger causality test is conducted to study the impact of bond returns, equity returns and commodity returns on carry trade. Spillover effect of carry trade returns of eleven currencies with that of equity and commodity, that is gold, has been studied. I have used Var – Bekk Garch approach to measure the spillover effect. Bekk method has the advantage of reduced parameter, but the disadvantage is that relationship of maximum three variables can be studied. Result suggests that the equity volatility have negative relationship with carry trade volatility and also gold volatility have negative relation with carry trade volatility.