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

Journal Article (Journal Article)

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.

Full Text

Duke Authors

Cited Authors

  • Burnside, C

Published Date

  • December 1, 2011

Published In

Volume / Issue

  • 101 / 7

Start / End Page

  • 3456 - 3476

International Standard Serial Number (ISSN)

  • 0002-8282

Digital Object Identifier (DOI)

  • 10.1257/aer.101.7.3456

Citation Source

  • Scopus