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Capm Risk Adjustment For Exact Aggregation Over Financial Assets


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  • LIU, YI


Barnett originated the Divisia monetary aggregates, which incontinuous time exactly track any monetary aggregator function underperfect certainty. With user costs measuring the prices of theservices of components, Barnett s aggregates are based on FrancoisDivisia s derivation of the Divisia line integral from thefirst-order conditions for optimizing behavior by economic agentsunder perfect certainty. We derive an extended Divisia index fromthe first-order conditions (Euler equations) that apply under risk.Our extended Divisia index is the first extension of index numbertheory into the domain of decision making under risk and therebyproduces a route for the extension of all index number theory topermit non-risk-neutrality. We generate simulated data from amodeled rational consumer and investigate the tracking accuracy ofthe extended Divisia index to the consumer s exact aggregatorfunction.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 1 (1997)
Issue (Month): 02 (June)
Pages: 485-512

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Handle: RePEc:cup:macdyn:v:1:y:1997:i:02:p:485-512_00

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