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

American Economic Review

Volumn 101, Issue 7, 2011, Pages 3477-3500

  Lustig, Hanno ^a   Verdelhan, Adrien ^b  

^a UNIVERSITY OF CALIFORNIA   (United States)

^b MASSACHUSETTS INSTITUTE OF TECHNOLOGY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 83755172789     PISSN: 00028282     EISSN: None     Source Type: Journal    
DOI: 10.1257/aer.101.7.3477     Document Type: Article

References (46)

1. Andrews, Donald W. K. 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation." Econometrica, 59(3): 817-58.
2. Ang, Andrew and Joseph S. Chen. 2010. "Yield Curve Predictors of Foreign Exchange Returns." Unpublished.
3. Backus, David K., Silverio Foresi, and Chris I. Telmer. 2001. "Affine Term Structure Models and the Forward Premium Anomaly." Journal of Finance, 56(1): 279-304.
4. Bansal, Ravi, and Amir Yaron. 2004. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles." Journal of Finance, 59(4): 1481-1509. (Pubitemid 39137799)
5. Barro, Robert J. 2006. "Rare Disasters and Asset Markets in the Twentieth Century." Quarterly Journal of Economics, 121(3): 823-66. (Pubitemid 44156845)
6. Bekaert, Geert, and Robert J. Hodrick. 1993. "On Biases in the Measurement of Foreign Exchange Risk Premiums." Journal of International Money and Finance, 12(2): 115-38.
7. Brennan, Michael J., and Yihong Xia. 2006. "International Capital Markets and Foreign Exchange Risk." Review of Financial Studies, 19(3): 753-95. (Pubitemid 44290382)
8. Burnside, Craig. 2007. "The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk: A Comment." National Bureau of Economic Research Working Paper 13129.
9. Burnside, Craig, Bing Han, David A. Hirshleifer, and Tracy Yue Wang. 2010. "Investor Overconfidence and the Forward Premium Puzzle." Duke University, Department of Economics Working Paper 10-46.
10. Burnside, Craig, Martin Eichenbaum, Isaac Kleshchelski, and Sergio Rebelo. 2006. "The Returns to Currency Speculation." National Bureau of Economic Research Working Paper 12489.
11. Burnside, Craig, Martin Eichenbaum, Isaac Kleshchelski, and Sergio Rebelo. 2008. "Do Peso Problems Explain the Returns to the Carry Trade?" National Bureau of Economic Research Working Paper 14054.
12. Burnside, Craig, Martin Eichenbaum, and Sergio Rebelo. 2007. "The Returns to Currency Speculation in Emerging Markets." American Economic Review, 97(2): 333-38.
13. Burnside, Craig, Martin Eichenbaum, and Sergio Rebelo. 2008. "Carry Trade: The Gains of Diversification." Journal of the European Economic Association, 6(2-3): 581-88.
14. Burnside, Craig, Martin Eichenbaum, and Sergio Rebelo. 2009. "Understanding the Forward Premium Puzzle: A Microstructure Approach." American Economic Journal: Macroeconomics, 1(2): 127-54.
15. Campbell, John Y., and John H. Cochrane. 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior." Journal of Political Economy, 107(2): 205-51. (Pubitemid 29326435)
16. Christiansen, Charlotte, Angelo Ranaldo, and Paul Soderlind. 2011. "The Time-Varying Systematic Risk of Carry Trade Strategies." Journal of Financial and Quantitative Analysis, 46: 1107-25.
17. Cochrane, John H. 2001. Asset Pricing. Princeton, N.J.: Princeton University Press.
18. DeSantis, Roberto A. and Fabio Fornari. 2008. "Does Business Cycle Risk Account for Systematic Returns from Currency Positioning? The International Perspective." Unpublished.
19. Epstein, Larry G., and Stanley E. Zin. 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework." Econometrica, 57(4): 937-69.
20. Fama, Eugene F. 1984. "Forward and Spot Exchange Rates." Journal of Monetary Economics, 14(3): 319-38.
21. Fama, Eugene F., and James D. MacBeth. 1973. "Risk, Return, and Equilibrium: Empirical Tests." Journal of Political Economy, 81(3): 607-36.
22. Farhi, Emmanuel, Samuel P. Fraiberger, Xavier Gabaix, Romain Ranciere, and Adrien Verdelhan. 2009. "Crash Risk in Currency Markets." Unpublished.
23. Froot, Kenneth A., and Richard H. Thaler. 1990. "Foreign Exchange." Journal of Economic Perspectives, 4(3): 179-92.
24. Gabaix, Xavier. 2009. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance." Unpublished.
25. Gomes, Joao F., Leonid Kogan, and Motohiro Yogo. 2009. "Durability of Output and Expected Stock Returns." Journal of Political Economy, 117(5): 941-86.
26. Hansen, Lars Peter, and Robert J. Hodrick. 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis." Journal of Political Economy, 88(5): 829-53.
27. Harvey, Campbell R., Bruno Solnik, and Guofu Zhou. 2002. "What Determines Expected International Asset Returns?" Annals of Economics and Finance, 3(2): 249-98.
28. Hodrick, Robert. 1987. The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets. Chur, Switzerland: Harwood Academic Publishers.
29. Hollifield, Burton and Amir Yaron. 2001. "The Foreign Exchange Risk Premium: Real and Nominal Factors." Unpublished.
30. Jagannathan, Ravi, and Zhenyu Wang. 1996. "The Conditional CAPM and the Cross-Section of Expected Returns." Journal of Finance, 51(1): 3-53. (Pubitemid 126314153)
31. Jagannathan, Ravi, and Zhenyu Wang. 1998. "An Asymptotic Theory for Estimating Beta-Pricing Models Using Cross-Sectional Regression." Journal of Finance, 53(4): 1285-1309. (Pubitemid 128348170)
32. Jurek, Jakub W. 2008. "Crash-Neutral Currency Carry Trades." Unpublished.
33. Kho, Bong-Chan, Dong Lee, and Rene M. Stulz. 2000. "U.S. Banks, Crises, and Bailouts: From Mexico to LTCM." American Economic Review, 90(2): 28-31.
34. Kozak, Serhiy. 2011. "Bond and Foreign Exchange Risk Premia." Unpublished.
35. Lettau, Martin, and Sydney Ludvigson. 2001. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying." Journal of Political Economy, 109(6): 1238-87. (Pubitemid 34060644)
36. Lewis, Karen K. 1995. "Puzzles in International Financial Markets." In Handbook of International Economics Volume 3, ed. G. M. Grossman and K. Rogoff, 1913-71. Vol.3, Handbooks in Economics. Amsterdam: Elsevier, North-Holland.
37. Lustig, Hanno, Nikolai Roussanov, and Adrien Verdelhan. Forthcoming. "Common Risk Factors in Currency Markets." Review of Financial Studies.
38. Lustig, Hanno, and Adrien Verdelhan. 2005. "The Cross-Section of Currency Risk Premia and US Consumption Growth Risk." National Bureau of Economic Research Working Paper 11104.
39. Lustig, Hanno, and Adrien Verdelhan. 2007. "The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk." American Economic Review, 97(1): 89-117.
40. Menkhoff, Lukas, Lucio Sarno, Maik Schmeling, and Andreas Schrimpf. Forthcoming. "Carry Trades and Global Foreign Exchange Rate Volatility." Journal of Finance.
41. Newey, Whitney K., and Kenneth D. West. 1987. "A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix." Econometrica, 55(3): 703-08.
42. Parker, Jonathan A., and Christian Julliard. 2005. "Consumption Risk and the Cross Section of Expected Returns." Journal of Political Economy, 113(1): 185-222. (Pubitemid 40427108)
43. Ross, Stephen A. 1976. "The Arbitrage Theory of Capital Asset Pricing." Journal of Economic Theory, 13(3): 341-60.
44. Shanken, Jay. 1992. "On the Estimation of Beta-Pricing Models." Review of Financial Studies, 5(1): 1-33.
45. Shanken, Jay, and Guofu Zhou. 2007. "Estimating and Testing Beta Pricing Models: Alternative Methods and Their Performance in Simulations." Journal of Financial Economics, 84(1): 40-86.
46. Yogo, Motohiro. 2006. "A Consumption-Based Explanation of Expected Stock Returns." Journal of Finance, 61(2): 539-80. (Pubitemid 43388185)