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

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Date
2011-12-01
Author
Burnside, C
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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.
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Journal article
Permalink
https://hdl.handle.net/10161/2034
Published Version (Please cite this version)
10.1257/aer.101.7.3456
Publication Info
Burnside, C (2011). The cross section of foreign currency risk premia and consumption growth risk: Comment. American Economic Review, 101(7). pp. 3456-3476. 10.1257/aer.101.7.3456. Retrieved from https://hdl.handle.net/10161/2034.
This is constructed from limited available data and may be imprecise. To cite this article, please review & use the official citation provided by the journal.
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Scholars@Duke

Burnside

A. Craig Burnside

Mary Grace Wilson Distinguished Professor
Burnside’s fields of specialization include macroeconomics and international finance. His recent research focuses on foreign exchange markets, empirical methods in finance, and the behavior of prices in housing markets. He has published articles in a number of academic journals, including the American Economic Review, the Journal of Political Economy, the Review of Economic Studies, and the Review of Financial Studies. He is a Research Associate of the National Bure
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