The CAPM-Extended Divisia Monetary Aggregate with Exact Tracking under Risk
AbstractThis paper extends the field of index number theory to the case of risk, by deriving the Divisia index from the Euler equations under risk, rather than from the first order conditions under perfect certainty, as was done by Francois Divisia. The result is an extended Divisia index which corrects for risk by subtracting from each risky user cost price a CCAPM beta term. The formula is derived and illustrated in terms of aggregation over monetary assets that yield risky return paid at the end of the period. Hence the beta correction is a function of the covariance between each rate of return and the consumption stream, and also depends upon the degree of risk aversion.
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Bibliographic InfoPaper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 201213.
Length: 24 pages
Date of creation: Sep 2012
Date of revision: Sep 2012
Other versions of this item:
- William A. Barnett & Yi Liu, 1996. "The CAPM-Extended Divisia Monetary Aggregate with Exact Tracking under Risk," Finance 9602001, EconWPA.
- G1 - Financial Economics - - General Financial Markets
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-MON-2012-09-09 (Monetary Economics)
- NEP-UPT-2012-09-09 (Utility Models & Prospect Theory)
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