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The CAPM Risk Adjustment Needed for Exact Aggregation over Financial Assets

Author

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  • William Barnett

    (Department of Economics, University of Kansas)

  • Yi Liu

    (Washington University in St.Louis)

  • Haiyang Xu

    (Washington University in St.Louis)

  • Mark Jensen

    (Southern Illinois University at Carbondale)

Abstract

This cumulative working paper contains the unified joint research completed so far on monetary aggregation under risk, including the extension of index number theory needed to incorporate adjustments for risk into the rate structure, experiments on tracking ability of the unadjusted index, and results on velocity instability when the risk adjustment is ignored and velocity instability is induced by overlooked stochastic volatility of interest rates. The paper was presented at the September 1995 Conference on Computation and Estimation in Finance and Economics, held at Washington University and organized by William Barnett, Lars Hansen, and George Tauchen. The conference proceedings will be published by Cambridge University Press.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • William Barnett & Yi Liu & Haiyang Xu & Mark Jensen, 2012. "The CAPM Risk Adjustment Needed for Exact Aggregation over Financial Assets," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201215, University of Kansas, Department of Economics, revised Sep 2012.
    • Handle: RePEc:kan:wpaper:201215
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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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