The answer seems affirmative. We compare currency carry trades with an investment strategy based on currency fundamentals: taking a long (short) position in undervalued (overvalued) currencies. Carry trades have high risk-adjusted returns, but are subject to "crash risk." In contrast, the fundamental strategy has lower risk-adjusted returns, but is less prone to crash risk, because the realization of crash risk coincides with corrections towards fundamentals. In particular, the fundamental strategy outperformed carry trades during the recent global financial crisis. Building on these results, we present early warning indicators for potential turbulence in the currency market.
al (2004) ). According to the criteria of Cashin et al (2004) , there are four commodity currencies in our dataset: the Australian dollar, the Canadian dollar, the New Zealand dollar, and the Norwegian krone. In this subsection, we analyze whether a portfolio comprising the four commodity currencies performs differently from that of non-commodity currencies. The portfolio is calculated by using an equal weight (i.e., 1/4 for the commodity-currencyportfolio and 1/5 for the non-commodity-currencyportfolio).
Table 12 compares the performance of the commodity-currency