Carry Trading & Uncovered Interest Rate Parity : An overview and empirical study of its applications

Abstract: The thesis examine if the uncovered interest rate parity holds over a 10 year period between Japan and Australia/Norway/USA. The data is collected between February 2001 - December 2010 and is used to, through regression and correlation analysis, explain if the theory holds or not. In the thesis it is also included a simulated portfolio that shows how a carry trading strategy could have been exercised and proof is shown that you can indeed profit as an investor on this kind of trades with low risk. The thesis shows in the end that the theory of uncovered interest rate parity does not hold in the long term and that some opportunities for profits with low risk do exist.