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Publication year
The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Comment
Resource type
Author/contributor
- Burnside, Craig (Author)
Title
The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Comment
Abstract
Lustig 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 the stochastic discount factor corresponding to their benchmark model is approximately uncorrelated with the returns they study. Hence, one cannot reject the null hypothesis that their model explains none of the cross sectional variation of the expected returns. Given this finding, and other evidence, I argue that the forward premium puzzle remains a puzzle. (JEL: C58, E21, F31, G11, G12)
Publication
American Economic Review
Volume
101
Issue
7
Pages
3456-76
Date
2011-12
Citation
Burnside, C. (2011). The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Comment. American Economic Review, 101, 3456–3476.
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