The research question
Research documents a related carry pattern across asset classes, but each market defines carry differently. This makes conceptual consistency and instrument knowledge essential.
The useful question is not whether a chart once went up. It is whether the hypothesis has a clear economic mechanism, appears outside one hand-picked sample, can be reconstructed with information that was available at the time, and remains plausible after realistic implementation frictions.
Minimum viable rule
Estimate the expected return if market conditions remain unchanged, then compare high-carry and low-carry assets with risk balancing.
Universe: Currencies, government bonds, commodities, equity indexes and credit instruments. A credible test fixes the universe, timestamps, missing-data policy and rebalance convention before model selection. Results should be shown both gross and net of an explicit cost model.
Implementation audit
Calculate carry from tradable contracts, not a generic yield field. Include financing, roll, collateral, transaction costs and currency conversion. A retail approximation may not replicate the institutional factor.
At minimum, an audit should report turnover, worst peak-to-trough loss, recovery time, exposure concentration and sensitivity to neighboring parameter choices. A strategy that works only at one exact lookback or threshold deserves a lower level of confidence.
How the idea can fail
Carry can accumulate small gains and then experience sharp losses during recessions, liquidity shocks or rapid policy changes. Derivative complexity and funding constraints raise operational risk.
Failure conditions belong in the strategy definition. They provide a disciplined reason to investigate or stop, instead of changing the story after a loss.
Primary source
Carry
Koijen, Moskowitz, Pedersen & Vrugt (2018), Journal of Financial Economics 127(2), 197–225.
DOI record
This page is an independent educational synthesis. It does not reproduce the paper and does not claim that published historical results are currently achievable.