Investing in foreign currency is like betting on your intertemporal marginal rate of substitution

• 成果类型: Article; Proceedings Paper
• 署名作者: Lustig, Hanno; Verdelhan, Adrien
• 署名单位: University of California System; University of California Los Angeles; National Bureau of Economic Research; Boston University
• 刊物名称: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
• ISSN/ISSBN: 1542-4766
• DOI: 10.1162/jeea.2006.4.2-3.644
• 发表日期: 2006
• 页码: 644-655
• 关键词: expected stock returns; exchange-rates; consumption; models

摘要

Investors earn positive excess returns on high interest rate foreign discount bonds, because these currencies appreciate on average. Lustig and Verdelhan (2005) show that investing in high interest rate foreign discount bonds exposes them to more aggregate consumption risk, while low interest rate foreign bonds provide a hedge. This paper provides a simple model that replicates these facts. Investing in foreign currency is like betting on the difference between your own intertemporal marginal rate of substitution (IMRS) and your neighbor's IMRS. These bets are very risky if your neighbor's IMRS is not correlated with yours, but they provide a hedge when his IMRS is highly correlated and more volatile. If the foreign neighbors that face low interest rates also have more volatile and correlated IMRS, that accounts for the spread in excess returns in the data.