|
|
|
|
||||
|
||||
The Cross-Section of Foreign Currency Risk Premia and Consumption Growth RiskHanno N. LustigUCLA - Anderson School of Management; National Bureau of Economic Research (NBER) Adrien VerdelhanMassachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER) August 2006 EFA 2005 Moscow Meetings Abstract: Aggregate consumption growth risk explains why low interest rate currencies do not appreciate as much as the interest rate differential and why high interest rate currencies do not depreciate as much as the interest rate differential. We sort foreign T-bills into portfolios based on the nominal interest rate differential with the US, and we test the Euler equation of a US investor who invests in these currency portfolios. US investors earn negative excess returns on low interest rate currency portfolios and positive excess returns on high interest rates currency portfolios. We find that low interest rate currencies provide US investors with a hedge against US aggregate consumption growth risk, because these currencies appreciate on average when US consumption growth is low, while high interest rate currencies depreciate when US consumption growth is low.
Number of Pages in PDF File: 51 Keywords: Asset Pricing, Exchange Rates JEL Classification: G12, F30 working papers seriesDate posted: January 12, 2005Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo3 in 0.391 seconds
