TY  - JOUR
AU  - Lustig,Hanno
AU  - Verdelhan,Adrien
TI  - The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk: A Reply
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13812
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13812
L1  - http://www.nber.org/papers/w13812.pdf
N1  - Author contact info:
Hanno Lustig
UCLA Anderson School of Management
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-1011
Fax: 310/825-9528
E-Mail: hlustig@anderson.ucla.edu

Adrien Verdelhan
MIT Sloan School of Management
100 Main Street, E62-621
Cambridge, MA 02142
Tel: 617/253-5123
E-Mail: adrienv@mit.edu
AB  - 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.
ER  -