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How much asymmetry is there in bond returns and exchange rates?

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  • Ippei Fujiwara
  • Lena Mareen Körber
  • Daisuke Nagakura

Abstract

We measure asymmetries in the distribution of bond returns and exchange rates and test their statistical significance. Asymmetries are sizable when measured by the coefficient of skewness, a measure that is highly affected by outliers. In contrast, robustly measured asymmetries to outliers often disagree in sign or size, implying that much of the asymmetries measured by the coefficient of skewness can be attributed to extreme observations. Asymmetries in many government bonds returns are only statistically significant according to tests based on the coefficient of skewness.> ; On the contrary, only tests based on robust measures indicate statistically significant asymmetries in the exchanges rates of Japanese yen, a major funding currency for carry trades, as well as in New Zealand dollar and Australian dollar, major investing currencies for carry trades. This observation suggests that sources of asymmetry in carry trades and in government bond returns can be fundamentally different.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 93.

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Date of creation: 2011
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Handle: RePEc:fip:feddgw:93

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Keywords: International finance;

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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Peiro, Amado, 1999. "Skewness in financial returns," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 847-862, June.
  3. Kim, Tae-Hwan & White, Halbert, 2004. "On more robust estimation of skewness and kurtosis," Finance Research Letters, Elsevier, vol. 1(1), pages 56-73, March.
  4. Francois Gourio, 2009. "Disaster risk and business cycles," 2009 Meeting Papers 1176, Society for Economic Dynamics.
  5. A. Craig Burnside & Martin Eichenbaum & Isaac Kleshchelski & Sergio T. Rebelo, 2010. "Do Peso Problems Explain the Returns to the Carry Trade?," Working Papers 10-44, Duke University, Department of Economics.
  6. David Backus & Silverio Foresi & Abon Mozumdar & Liuren Wu, 1998. "Predictable Changes in Yields and Forward Rates," NBER Working Papers 6379, National Bureau of Economic Research, Inc.
  7. Kiefer, Nicholas M. & Bunzel, Helle & Vogelsang, Timothy & Vogelsang, Timothy & Bunzel, Helle, 2000. "Simple Robust Testing of Regression Hypotheses," Staff General Research Papers 1832, Iowa State University, Department of Economics.
  8. Kuan, Chung-Ming & Lee, Wei-Ming, 2006. "Robust M Tests Without Consistent Estimation of the Asymptotic Covariance Matrix," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1264-1275, September.
  9. Chen, Yi-Ting & Chou, Ray Y. & Kuan, Chung-Ming, 2000. "Testing time reversibility without moment restrictions," Journal of Econometrics, Elsevier, vol. 95(1), pages 199-218, March.
  10. Jushan Bai & Serena Ng, 2005. "Tests for Skewness, Kurtosis, and Normality for Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 49-60, January.
  11. Chen Yi-Ting & Lin Chang-Ching, 2008. "On the Robustness of Symmetry Tests for Stock Returns," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(2), pages 1-40, May.
  12. Gamini Premaratne, 2005. "A Test for Symmetry with Leptokurtic Financial Data," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(2), pages 169-187.
  13. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
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Cited by:
  1. Ippei Fujiwara & Lena Mareen Korber & Daisuke Nagakura, 2013. "Asymmetry in Government Bond Returns," CAMA Working Papers 2013-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. repec:csg:ajrcwp:1301 is not listed on IDEAS
  3. Bank for International Settlements, 2011. "Interactions of sovereign debt management with monetary conditions and financial stability," CGFS Papers, Bank for International Settlements, number 42, July.

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