We analyse carry trades involving the Australian dollar, Indonesian rupiah, Indian rupee, New Zealand dollar and Philippine peso as target currencies. We find evidence supporting the view that downside risk is an important feature of such strategies and propose ways of measuring this risk

Traditional Monte Carlo simulation using linear correlations induces estimation bias in measuring portfolio value-at-risk (VaR) due to the well-documented existence of fat-tail, skewness, truncations, and non-linear relations of return distributions. In this paper, we evaluate the effectiveness...

Combinations of a six-Currency portfolio are studied for a two-year period to access the reliability of “value at risk” approach to measuring the transaction exposure. The values at risk for each currency and for every additional currency portfolio are estimated for each year. The outcomes...

The tail of financial returns is typically governed by a power law (i.e. “fat tails”). However, the constancy of the so-called tail index α which dictates the tail decay has been hardly investigated. We study the finite sample properties of some recently proposed endogenous tests for...

This article presents an overview of widely practiced short-term multi-currency investment strategies such as carry trade, momentum and term spread strategies. We provide evidence on their downside risk properties and illustrate their performance over historical episodes of financial market...

Blejer and Schumacher (1999) were the first to suggest that Central Bank's Value at Risk (VaR), a widely used composite measure of potential portfolio losses in the corporate sector, could be used as an early warning indicator of financial crises. We extend their research in two aspects. First,...