{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,20]],"date-time":"2026-10-20T07:38:54Z","timestamp":1792481934809,"version":"4.5.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>&lt;b&gt;Rationale.&lt;\/b&gt; Galati et al. (2007) proposed the carry-to-risk ratio as a measure of the attractiveness of currency carry trades and pointed to risk reversals as a measure of their directional risk. If either indicator anticipated the losses of carry trades, it would be an early warning for investors and supervisors who follow the build-up of these positions. If both react to losses, their value lies in measuring stress once an unwind has started. \n&lt;br&gt;&lt;b&gt;Research question.&lt;\/b&gt; Does the carry-to-risk ratio or the risk reversal anticipate the losses of yen-funded carry trades? \n&lt;br&gt;&lt;b&gt;Data and methods. &lt;\/b&gt;Both indicators are rebuilt daily for five yen-funded carry trades (the US, Australian, New Zealand and Canadian dollars and the pound sterling against the yen) from Bloomberg option and forward data, from 30 August 2007 to 16 October 2026, with a two-pair basket from 8 October 2004 as a robustness sample. The dependent variable is the excess return of an equally weighted carry basket. The analysis uses predictive regressions with Newey-West standard errors, Granger causality tests and a probit model for tail weeks, specified and checked against the framework of Greene (2003). \n&lt;br&gt;&lt;b&gt;Main findings.&lt;\/b&gt; Basket returns Granger-cause the changes in both indicators at every lag order tested (\ud835\udc5d &amp;lt; 0.001), while the hypothesis that changes in the risk reversal do not Granger-cause returns is never rejected (\ud835\udc5d between 0.253 and 0.950), which confirms on a new sample earlier evidence that risk reversals follow carry trade losses. Neither indicator has robust predictive power for returns or for tail weeks. The risk reversal remains useful for risk management because it stays high after the first losses. A rule that halves exposure when it is high lowers the maximum drawdown of the basket from-32.6% to-24.5%.<\/jats:p>","DOI":"10.2139\/ssrn.7625698","type":"posted-content","created":{"date-parts":[[2026,10,20]],"date-time":"2026-10-20T06:45:46Z","timestamp":1792478746000},"source":"Crossref","is-referenced-by-count":0,"title":["Do Carry-to-Risk Ratios and Risk Reversals Anticipate Unwinds of Yen-funded Carry Trades?"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0008-3010-8270","authenticated-orcid":true,"given":"Alessandro","family":"Mazzarini","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,20]],"date-time":"2026-10-20T06:45:46Z","timestamp":1792478746000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7625698"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7625698","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}