Measures of global uncertainty and carry-trade excess returns

Asset market participants generally do not like uncertainty. In studying the cross-section of carry-trade-generated currency excess returns and their exposure to macroeconomic uncertainty, we find it also to be true for those participating in this market. A global, news-based measure of macroeconomic uncertainty is negatively and robustly priced into these excess returns, which is consistent with the existence of a global uncertainty factor.