The cross section of foreign currency risk premia and consumption growth risk: Reply
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Verdelhan_Cross section.pdf
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1.12 MB
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Adobe PDF
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Author(s)
Hanno, Lustig
Verdelhan, Adrien Frederic
Date Issued
December 2011
Journal
American Economic Review
Publisher
American Economic Association
Citation
Lustig, Hanno, and Adrien Verdelhan. “The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk: Reply.” American Economic Review 101.7 (2011): 3477–3500.
Version
Final published version
Abstract
The consumption growth beta of an investment strategy that goes long in high interest rate currencies and short in low interest rate currencies is large and significant. Consumption risk price differs significantly from zero, even after accounting for the sampling uncertainty introduced by the estimation of the consumption betas. The constant in the regression of average returns on consumption betas is not significant. Additionally, this investment strategy's consumption and market betas increase during recessions and times of crisis, when risk prices are high, implying that the unconditional betas understate its riskiness.
MIT Department
Sloan School of Management
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.101.7.3477
