Resumen
This paper analyzes the information content of risk reversals for ten emergingmarket currencies. In contrast to the findings for major developed currencies,it is found that in some cases risk reversals (RR) are helpful in predictingcurrency returns, but in general RR are predicted by but do not predict carrytrade returns. Evidence based on country vector autoregressions (VARs) and apanel VAR (PVAR) indicate that RR react in a procyclicalway to carry returns, i.e.,it is cheaper (more expensive) to buy protection against currency weakness afterpositive (negative) total returns. All in all, it is found that crash risk accountsfor a small share of carry trade returns variance, which seems to be more relatedto global risk aversion shocks. A sentiment indicator of crash risk in emergingmarket currencies is highly correlated with the VIX.