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How much Asymmetry is there in Bond Returns and Exchange Rates?

September 9, 2011
Lena Mareen Koerber*1
Daisuke Nagakura*2
Ippei Fujiwara*3

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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.

We thank Toni Braun, Hibiki Ichiue, Karen Lewis, Masao Ogaki, Tatsuyoshi Okimoto, seminar participants at the Bank of Japan and participants of the 8th Conference for Applied Financial Economics for their helpful comments. Views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  •   *1 London School of Economics
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  •   *2 Keio University
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  •   *3 Financial Markets Department, Bank of Japan.
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