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.
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https://hdl.handle.net/10161/2034Published Version (Please cite this version)
10.1257/aer.101.7.3456Publication 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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Show full item recordScholars@Duke
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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