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Systematic consumption risk in currency returns

Hoffman, Mathias; Studer-Suter, Rahel

Description

We sort currencies into portfolios by countries' past consumption growth. The excess return of the highest-over the lowest-consumption-growth portfolio - our consumption carry factor - compensates for negative returns during world-wide downturns and prices the cross-section of portfolio-sorted and of bilateral currency returns. Empirically, sorting currencies on consumption growth is very similar to sorting currencies on interest rates. We interpret these stylized facts in a habit formation...[Show more]

CollectionsANU Research Publications
Date published: 2017
Type: Journal article
URI: http://hdl.handle.net/1885/265583
Source: Journal of International Money and Finance
DOI: 10.1016/j.jimonfin.2017.01.001

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