Don’t Get Carried Away by Carry 

Observing unusual but insightful cross-asset relationships

October 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Carry across asset classes has not performed strongly over the most recent decade
  • Currency carry and Value & Size equity factors exhibited the same trends in performance since 1999
  • All three factors are likely driven by risk sentiment, essentially offering the same risk exposure


There are folks in finance who know and folks who don’t know. The latter group often drives the former crazy by abusing terminology. For example, moderators and guests on CNBC talking about momentum and growth stocks as if they were the same thing. Or putting all quantitative strategies indiscriminately into one quant category. Like CTAs and merger arbitrage.

Arbitrage itself is probably one of the most misused words in the investment world. The definition is simple: a riskless profit, which unfortunately is almost non-existent, or has been arbitraged away over time. Statistical or merger arbitrage are certainly not riskless strategies, although portfolios are structured carefully to minimize risks. Investors new to capital markets often regard the carry trade an arbitrage opportunity, while more experienced investors have seen how risky this trade can be.

Carry is interesting currently as the investment world can be viewed as one large carry trade. Central bankers in the US, Europe, and Japan provide cheap financing via quantitative easing and investors allocate this to risky assets like equities, venture capital, private equity, or real estate. Asset classes without mark-to-market are ideal as losses don’t become apparent quickly (read Value, Momentum & Carry Across Asset Classes).

There is also the classic carry trade that borrows in low-yielding currencies like the Japanese Yen, Euro, or Swiss Franc and invests the capital in higher-yielding ones. However, this has become far less attractive in recent years as the spread between high and low-yielding currencies compressed due to a harmonized global monetary policy.

In this short research note, we will check in on the livelihood of the carry trade.


Although the carry tr