Note on the cross-section of foreign currency risk premia and consumption growth risk
By: Hanno Lustig, Adrien Verdelhan.
Contributors: Verdelhan, Adrien.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13812; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13812.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We find that the US consumption growth beta of an investment strategy that goes long in high interest rate currencies and short in low interest rate currencies is larger than one.  These consumption beta estimates are statistically significant, contrary to what is claimed by Burnside (2007).  With these consumption betas, the Consumption-CAPM can account for the average return on this investment strategy of 5.3 percent per annum with a market price of consumption growth risk that is about 5 percent per annum, lower than the price of consumption risk implied by the US equity premium over the same sample.  When we formally estimate the model on currency portfolios in a two-step procedure, our estimate of 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, while the constant in the regression of average returns on consumption betas is not significant"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/13/2008.

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