Replication data for: The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Comment

Principal Investigator(s): View help for Principal Investigator(s) Craig Burnside

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Project Citation:

Burnside, Craig. Replication data for: The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Comment. Nashville, TN: American Economic Association [publisher], 2011. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-11. https://doi.org/10.3886/E112487V1

Project Description

Summary: 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. (JEL: C58, E21, F31, G11, G12)

Scope of Project

JEL Classification:
      C58 Financial Econometrics
      E21 Macroeconomics: Consumption; Saving; Wealth
      F31 Foreign Exchange
      G11 Portfolio Choice; Investment Decisions
      G12 Asset Pricing; Trading Volume; Bond Interest Rates

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V1 [2019-10-11]

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