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

Hanno Lustig and Adrien Verdelhan ()

No 13812, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The U.S. 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. The price of consumption risk is significantly different 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. In addition, the consumption and market betas of this investment strategy increase during recessions and times of crisis, when risk prices are high, implying that the unconditional betas understate its riskiness. We use the recent crisis as an example.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 2008-02
Note: AP IFM
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Citations: View citations in EconPapers (3)

Published as Hanno Lustig & Adrien Verdelhan, 2011. "The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk: Reply," American Economic Review, American Economic Association, vol. 101(7), pages 3477-3500, December.

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