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Mr. Masahiro Nozaki
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.
Mr. Masahiro Nozaki

Currency Fundamentals C. Transaction Costs D. Correlation with Risk Factors E. Commodity Currencies V. Conclusion Tables 1. Tests for Unit Root and Cointegration 2. Estimates of the Cointegration Vector 3. Performance of Currency Speculation Strategies 4. Performance of Currency Speculation Strategies: Subsamples 5A. Sources of Negative Skewness for the Carry Trade Strategy 5B. Realized Returns of the Equally Weighted Portfolio during Dismal Months of CT 6. Optimal Investment and Utility Levels 7. Performance of Currency Speculation Strategies

Mr. Masahiro Nozaki

adjustment of the exchange rate toward its fundamental value. As observed by Rogoff (1996) , the half life of a deviation from the purchasing power parity (PPP) can be as long as three to five years. In evaluating the performance of currency speculation strategies, we find that the fundamental values of currencies do matter. We compare the historical rates of return of different currency speculation strategies for nine advanced country currencies, assuming that investors adjust their positions on a monthly basis. As observed by other studies, the carry trade strategy