The DOI matches its Crossref record; 42 of the 42 references it cites were found in a registry or an index.
A Habit‐Based Explanation of the Exchange Rate Risk Premium
Open accessAbstract
This paper presents a model that reproduces the uncovered interest rate parity puzzle. Investors have preferences with external habits. Countercyclical risk premia and procyclical real interest rates arise endogenously. During bad times at home, when domestic consumption is close to the habit level, the representative investor is very risk averse. When the domestic investor is more risk averse than her foreign counterpart, the exchange rate is closely tied to domestic consumption growth shocks. The domestic investor therefore expects a positive currency excess return. Because interest rates are low in bad times, expected currency excess returns increase with interest rate differentials.
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Cites
Common risk factors in the returns on stocks and bonds
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A Theory of the Term Structure of Interest Rates
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Mehra, R., & Prescott, E. C. (1985) · Journal of Monetary Economics · doi:10.1016/0304-3932(85)90061-3 · Cited by 5,535
By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
Campbell, J. Y., & Cochrane, J. H. (1999) · Journal of Political Economy · doi:10.1086/250059 · Cited by 5,210
Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory*
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Cited by
Financial Markets and the Real Economy
Cochrane, J. H. (2008) · Handbook of the Equity Risk Premium · doi:10.1016/b978-044450899-7.50014-2 · Cited by 543
The common factor in idiosyncratic volatility: Quantitative asset pricing implications
Herskovic, B., Kelly, B., Lustig, H., & Van Nieuwerburgh, S. (2016) · Journal of Financial Economics · doi:10.1016/j.jfineco.2015.09.010 · Cited by 398
Countercyclical currency risk premia
Lustig, H., Roussanov, N., & Verdelhan, A. (2014) · Journal of Financial Economics · doi:10.1016/j.jfineco.2013.12.005 · Cited by 355
Self-citationCochrane, J. H. (2017) · Review of Finance · doi:10.1093/rof/rfx010 · Cited by 322
Crash-neutral currency carry trades
Jurek, J. W. (2014) · Journal of Financial Economics · doi:10.1016/j.jfineco.2014.05.004 · Cited by 319
Metadata
- Authors
- VERDELHAN, A.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2010-01-13
- Volume
- 65
- Issue
- 1
- Pages
- 123-146
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W1518156372
- Cited by
- 484
- References
- 42
- FWCI
- 95.46
- Type
- journal article
- Language
- en
- Open access
- bronze
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
