The CAPM-Extended Divisia Monetary Aggregate with Exact Tracking under Risk
This 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.
|Date of creation:||12 Feb 1996|
|Date of revision:|
|Note:||Type of Document - Microsoft Word; prepared on Macintosh; to print on Postscript; pages: 24 ; figures: None.. See|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Blackorby Charles & Russell R. Robert, 1994. "The Conjunction of Direct and Indirect Separability," Journal of Economic Theory, Elsevier, vol. 62(2), pages 480-498, April.
- Julio J. Rotemberg & John C. Driscoll & James M. Poterba, 1991.
"Money, Output and Prices: Evidence from A New Monetary Aggregate,"
NBER Working Papers
3824, National Bureau of Economic Research, Inc.
- Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
- Rotemberg, J.J. & Driscoll, J.C. & Poterba, J.M., 1991. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Working papers 585, Massachusetts Institute of Technology (MIT), Department of Economics.
- Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
- Feldstein, Martin & Stock, James H., 1996.
"Measuring money growth when financial markets are changing,"
Journal of Monetary Economics,
Elsevier, vol. 37(1), pages 3-27, February.
- James H. Stock & Martin Feldstein, 1994. "Measuring Money Growth When Financial Markets Are Changing," NBER Working Papers 4888, National Bureau of Economic Research, Inc.
- N/A, 1994. "Commentary," National Institute Economic Review, National Institute of Economic and Social Research, vol. 147(1), pages 3-6, February.
- Barnett, William A & Fisher, Douglas & Serletis, Apostolos, 1992. "Consumer Theory and the Demand for Money," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2086-2119, December.
- Constantinides, George M, 1990.
"Habit Formation: A Resolution of the Equity Premium Puzzle,"
Journal of Political Economy,
University of Chicago Press, vol. 98(3), pages 519-43, June.
- G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
- William Barnett, 2005.
WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS
200510, University of Kansas, Department of Economics, revised Mar 2005.
- N/A, 1994. "Commentary," National Institute Economic Review, National Institute of Economic and Social Research, vol. 149(1), pages 3-4, August.
- N/A, 1994. "Commentary," National Institute Economic Review, National Institute of Economic and Social Research, vol. 148(1), pages 3-6, May.
- Blackorby, Charles & Davidson, Russell & Schworm, William, 1991.
"Implicit separability: Characterisation and implications for consumer demands,"
Journal of Economic Theory,
Elsevier, vol. 55(2), pages 364-399, December.
- Blackorby, C. & Davidson, R. & Schworm, W., 1990. "Implicit Separability: Characterisation And Implications For Consumer Demands," G.R.E.Q.A.M. 90a16, Universite Aix-Marseille III.
- N/A, 1994. "Commentary," National Institute Economic Review, National Institute of Economic and Social Research, vol. 150(1), pages 3-6, November.
- Maurice Salles, 2005. "Social Choice," Post-Print halshs-00337075, HAL.
- Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
- William A. Barnett & Melvin Hinich & Piyu Yue, 1989. "Monitoring monetary aggregates under risk aversion," Proceedings, Federal Reserve Bank of St. Louis, pages 189-245.
- Charles Blackorby & William Schworm, 1984. "The Structure of Economies with Aggregate Measures of Capital: A Complete Characterization," Review of Economic Studies, Oxford University Press, vol. 51(4), pages 633-650.
- Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, vol. 14(1), pages 11-48, September.
- Belongia, Michael T, 1996. "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1065-83, October.
- Stahl, Dale O, II, 1983. "Quasi-Homothetic Preferences, the Generalized Divisia Quantity Index, and Aggregation," Economica, London School of Economics and Political Science, vol. 50(197), pages 87-93, February.
- Fischer, Stanley, 1974. "Money and the Production Function," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 517-33, December.
- Moulin, Herve, 1994. "Social choice," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 31, pages 1091-1125 Elsevier.
- Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-25, November.
- Mark Rubinstein, 1976. "The Valuation of Uncertain Income Streams and the Pricing of Options," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 407-425, Autumn.
- Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9602001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.