OtherEconomic Research Initiatives at Duke (ERID) · December 15, 2012
Recent research in international finance has equated changes in real exchange rates with differences between the marginal utility growths of representative agents in different economies. The asset market view of exchange rates, encapsulated in this equatio ...
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Journal ArticleAmerican Economic Review · December 1, 2011
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 m ...
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Journal ArticleAnnual Review of Financial Economics · November 16, 2011
We examine the empirical properties of the payoffs to two popular currency speculation strategies: the carry trade and momentum. We review three possible explanations for the apparent profitability of these strategies. The first is that speculators are bei ...
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Journal ArticleReview of Economic Studies · April 1, 2011
We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the f ...
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Journal ArticleReview of Financial Studies · March 1, 2011
We study the properties of the carry trade, a currency speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs that are on average large and uncorrelated with t ...
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