Avoiding Yen Carry Trade Unwind Through Diversification

Abstract

This study compares Markowitz’s mean-variance carry trade portfolios with traditional foreign exchange carry trade investments. The strategy generates on average positive yields over the total time frame, including the 2008 yen carry trade unwind, proving the strength of diversification. Recognizing investment opportunities in the USD/HKD currency pair has been a crucial part in obtaining a high return to variance ratio.