Working Papers / Published Papers / Data
Does Market Incompleteness Help to Explain Exchange Rates? A Quantitative Assessment, with Hanno Lustig. April 2015, pdf.
  • Market incompleteness cannot solve the FX volatility, cyclicality, and risk premium puzzles at the same time.
Uncertainty Betas and International Capital Flows, with Francois Gourio and Michael Siemer. December 2014, pdf.
  • Capital inflows respond to both systematic and country-specific shocks to volatility, and they respond more in high uncertainty beta countries.
The International CAPM Redux, with Francesca Brusa and Tarun Ramadorai. First version: June 2014; This version: November 2014, pdf (appendix)
  • Three factors (equity, dollar, and carry) describe the cross-section of equity returns from 46 developed and emerging countries from 1976 to the present.
The Term Structure of Currency Carry Trade Risk Premia, with Hanno Lustig and Andreas Stathopoulos. First version: May 2013; This version: Mars 2015, pdf (appendix)
  • High interest rate currencies yield high currency excess returns on short-term Treasury bill investments, but they tend to yield low excess returns on long-term government bonds. When markets are complete, this exact result obtains when the martingale components of the pricing kernels are the same across countries.
The Share of Systematic Risk in Bilateral Exchange Rates, February 2015, pdf (appendix, data)
  • The dollar factor is a risk factor: it accounts for a novel cross-section of dollar beta-sorted currency returns. Carry and dollar describe a large share of the monthly changes in bilateral exchange rates.
Sovereign Risk Premia, with Nicola Borri, March 2012 pdf (appendix, data). Winner of the WRDS Best Paper Award, EFM 2010.
  • Sovereign optimal defaults and bond prices depend not only on the borrowers' economic conditions, but also on the lenders' time-varying risk aversion.
Crash Risk in Currency Markets, with Emmanuel Farhi, Samuel Fraiberger, Xavier Gabaix and Romain Ranciere, May 2014, pdf (appendix).
  • After the fall of 2008, currency options prices exhibit a sharp increase in tail risk, similar to the emergence of the smirk in equity options after the 1987 crash. We estimate a simple structural model that includes both Gaussian and disaster risk.


Published Papers


Countercyclical Currency Risk Premia, with Hanno Lustig and Nikolai Roussanov, Journal of Financial Economics, March 2014, Vol. 111 (3), pp. 527--553, pdf.
  • 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 Wealth-Consumption Ratio, with Hanno Lustig and Stijn Van Nieuwerburgh, Review of Asset Pricing, June 2013, Vol. 3 (1), pp 38--94, pdf.
  • The consumption risk premium is only 2.2 percent. Most of wealth is human wealth. Events in bond markets, not stock markets, matter most for understanding fluctuations in total wealth.

International Risk Cycles, with Francois Gourio and Michael Siemer, Journal of International Economics, March 2013, Vol. 89, pp. 471-484, pdf (appendix).
  • A two-country real business cycle model generates a low correlation between relative consumption growth and exchange rates, a large forward premium, and "excess comovement" of asset prices relative to quantities.

Business Cyclical Variation in the Risk-Return Trade-off, with Hanno Lustig, Journal of Monetary Economics, December 2012, Vol. 59, pp. 35-49, pdf (appendix).
  • Value-maximizing managers face much higher risk-adjusted costs of capital in their investment decisions during recessions than expansions.

Common Risk Factors in Currency Markets, with Hanno Lustig and Nikolai Roussanov, Review of Financial Studies, November 2011, Vol. 24 (11), pp. 3731-3777, (pdf, data). Winner of the Terker Prize in Investment Research, 2009.
  • A `slope' factor accounts for most of the cross-sectional variation in average excess returns between high and low interest rate currencies. Carry trade investors load up on global volatility risk.

The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk: A Reply, with Hanno Lustig. American Economic Review, December 2011, Vol. 101, pp. 3477-3500 (pdf).

  • The 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. Consumption and market betas increase during recessions and times of crisis.

Information Shocks, Liquidity Shocks, Jumps, and Price Discovery: Evidence from the U.S. Treasury Market, with George J. Jiang and Ingrid Lo, Journal of Financial and Quantitative Analysis, Vol. 46, No. 2, Apr. 2011, pp. 527–551 (pdf).
  • Relative importance of macroeconomic news announcements versus variation in market liquidity in explaining the observed jumps in the U.S. Treasury market.

Long-Run Risk, the Wealth-Consumption Ratio, and the Temporal Pricing of Risk, with Ralph Koijen, Hanno Lustig, and Stijn Van Nieuwerburgh, American Economic Review, Papers and Proceedings, May 2010, Vol. 100, No 2, pp 552-556 (pdf). Appendix (pdf).
  • The long-run risk model, which is successful at matching the wealth-consumption ratio, high equity risk premium and the nominal yields at short maturities implies too little (much) variation in the martingale component of the nominal (real) pricing kernel.

A Habit-Based Explanation of the Exchange Rate Risk Premium, First Version: November 2003, This Version: October 2008, pdf. Journal of Finance, February 2010, Vol. 65, No 1, pp 123-145. Appendix (pdf)
  • The first fully rational explanation of the the uncovered interest rate parity / forward premium puzzle.

The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk, with Hanno Lustig. American Economic Review, March 2007, vol. 97, No 1, pp 89-117, pdf. Data

  • We sort foreign currency returns into portfolios based on foreign interest rates, and we test the Euler equation of a domestic investor who invests in these currency portfolios.

Investing in Foreign Currency is like Betting on your Intertemporal Marginal Rate of Substitution, with Hanno Lustig. Journal of the European Economic Association, Papers and Proceedings, April-May 2006, Vol. 4, No. 2-3, pp 644-655, pdf.

  • 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.

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