Causal relation between carry trade investments and its determinants: The case of Turkey

Carry trade which focuses on making profit from interest rate differentials between countries in low exchange rate volatility; constitute a significant portion of short-term capital movements to developing countries such as Turkey. In this context, it is important to determine the direction and degree of the relationship between carry trade investments and its determinants. In this study, causal relationship between carry trade volume realized on US dollar basis in Turkey and its determinants examined for the period 2005:M09-2018:M08. According to frequency domain causality results; there are strong causal relationships from nominal exchange rate, interest rate differences, VIX and BIST-100 index to carry trade volume. According to asymmetric causality results; there are significant causal relationships from interest rate differentials, VIX and S&P-500 index to carry trade volume