The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk: A Comment

41 Pages Posted: 27 Apr 2010

See all articles by A. Craig Burnside

A. Craig Burnside

Duke University - Department of Economics; University of Glasgow - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2007

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 these excess returns are all approximately uncorrelated with the consumption risk factors they study. Hence, their model cannot explain the cross-sectional variation of the returns. Their positive assessment results from allowing for a large constant in the model, and from ignoring sampling uncertainty in estimated betas used as explanatory variables in cross-sectional regressions that determine estimated consumption risk premia

JEL Classification: F31,G12

Suggested Citation

Burnside, Craig, The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk: A Comment (May 1, 2007). Duke Department of Economics Research Paper No. 44, Available at SSRN: https://ssrn.com/abstract=1596283 or http://dx.doi.org/10.2139/ssrn.1596283

Craig Burnside (Contact Author)

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