The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk: A Comment
AbstractLustig and Verdelhan (2007) argue that the excess returns to borrowing US dollars and lending in foreign currency "compensate US investors for taking on more US consumption growth risk," yet these excess returns are all approximately uncorrelated with the consumption risk factors they study. Hence, their model cannot explain the cross-sectional variation of the returns. Their positive assessment results from allowing for a large constant in the model, and from ignoring sampling uncertainty in estimated betas used as explanatory variables in cross-sectional regressions that determine estimated consumption risk premia
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 10-43.
Date of creation: 2010
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Other versions of this item:
- Craig Burnside, 2011. "The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Comment," American Economic Review, American Economic Association, vol. 101(7), pages 3456-76, December.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- Victoria Galsband & Thomas Nitschka, 2013. "Currency excess returns and global downside market risk," Working Papers 2013-07, Swiss National Bank.
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