The cross section of foreign currency risk premia and consumption growth risk: comment

Burnside, C. (2011) The cross section of foreign currency risk premia and consumption growth risk: comment. American Economic Review, 101(7), pp. 3456-3476. (doi: 10.1257/aer.101.7.3456)

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Publisher's URL: http://dx.doi.org/10.1257/aer.101.7.3456

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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Burnside, Professor Craig
Authors: Burnside, C.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:American Economic Review
ISSN:0002-8282

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