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Title: A stochastic dominance analysis of yen carry trades
Authors: Fong, W.M. 
Keywords: Carry trades
Stochastic dominance
Uncovered interest parity
Issue Date: 2010
Citation: Fong, W.M. (2010). A stochastic dominance analysis of yen carry trades. Journal of Banking and Finance 34 (6) : 1237-1246. ScholarBank@NUS Repository.
Abstract: Yen carry trades have made headline news for over a decade. We examine the profitability of such trades for the period 2001-2009. Yen carry trades generated high mean returns and Sharpe ratios prior to the recent financial crisis. They continued to outperform major stock markets for the full sample period. Given the non-normality of carry trade returns, we apply non-parametric tests based on stochastic dominance (SD) to evaluate whether the high returns of yen carry trades are compatible with risk as reflected in returns on US and global stock market indices. We apply a general test for SD developed recently by Linton, Maasoumi and Whang (2005) to six currencies as well as portfolios of these currencies. For a large class of risk-averse investors, profits from yen carry trades cannot be attributed to risks. © 2009 Elsevier B.V. All rights reserved.
Source Title: Journal of Banking and Finance
ISSN: 03784266
DOI: 10.1016/j.jbankfin.2009.11.017
Appears in Collections:Staff Publications

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