Improving Carry Trade By Replacing Yield With Fear

We improved the carry trade by replacing yield with fear.

The traditional carry trade borrows in low-interest-rate currencies and invests in high-yield ones. But back in 2020, our then-intern Tiago Quevedo Teodoro had an idea: what if you invested in the currencies of countries with the highest business media fear instead?

Borrowing from the bottom 20% of interest-rate currencies and deploying into high-fear markets produced significantly higher and more stable returns than the classic approach.

Why? Media-driven fear inflates risk perception, pushing investors to sell exactly when they should be holding or buying.

Last week we updated Tiago's research. The equity curve still outperforms.

If you'd like to test similar concepts in your own global macro strategies, reach out and we'll get you access to our data and Python notebooks.