The DOI matches its Crossref record; 57 of the 57 references it cites were found in a registry or an index.
Countercyclical currency risk premia
Abstract
We describe a novel currency investment strategy, the ‘dollar carry trade,’ which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies. Using a no-arbitrage model of exchange rates we show that these excess returns compensate U.S. investors for taking on aggregate risk by shorting the dollar in bad times, when the U.S. price of risk is high. The countercyclical variation in risk premia leads to strong return predictability: the average forward discount and U.S. industrial production growth rates forecast up to 25% of the dollar return variation at the one-year horizon. The estimated model implies that the variation in the exposure of U.S. investors to worldwide risk is the key driver of predictability.
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Cites
By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
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Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation
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A comprehensive look at the empirical performance of equity premium prediction
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Cited by
Crash-neutral currency carry trades
Jurek, J. W. (2014) · Journal of Financial Economics · doi:10.1016/j.jfineco.2014.05.004 · Cited by 319
Koijen, R. S. J., Moskowitz, T. J., Pedersen, L. H., & Vrugt, E. B. (2018) · Journal of Financial Economics · doi:10.1016/j.jfineco.2017.11.002 · Cited by 286
Metadata
- Authors
- Lustig, H., Roussanov, N., & Verdelhan, A.
- Venue
- Journal of Financial Economics
- Publisher
- Elsevier BV
- Published
- 2014-03
- Volume
- 111
- Issue
- 3
- Pages
- 527-553
- ISSN
- 0304-405X (ISSN-L)
- OpenAlex
- W3122965465
- Cited by
- 355
- References
- 57
- FWCI
- 34.32
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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