The Cross-Section of Currency Risk Premia and Us Consumption Growth Risk

@inproceedings{Lustig2005TheCO,
  title={The Cross-Section of Currency Risk Premia and Us Consumption Growth Risk},
  author={Hanno Lustig and Adrien Verdelhan},
  year={2005}
}
Aggregate consumption growth risk explains why low interest rate currencies do not appreciate as much as the interest rate differential and why high interest rate currencies do not depreciate as much as the interest rate differential. We sort foreign T-bills into portfolios based on the nominal interest rate differential with the US, and we test the Euler equation of a US investor who invests in these currency portfolios. US investors earn negative excess returns on low interest rate currency… CONTINUE READING