On user costs of risky monetary assets

William Barnett () and Shu Wu ()

Annals of Finance, 2005, vol. 1, issue 1, pages 35-50

Abstract: We extend the monetary-asset user-cost risk adjustment of Barnett, Liu and Jensen (1997) and their risk-adjusted Divisia monetary aggregates to the case of multiple non-monetary assets and intertemporal non-separability. Our model can generate potentially larger and more accurate CCAPM user-cost risk adjustments than those found in Barnett, Liu and Jensen (1997). We show that the risk adjustment to a monetary asset’s user cost can be measured easily by its beta. We show that any risky non-monetary asset can be used as the benchmark asset, if its rate of return is adjusted in accordance with our formula. These extensions could be especially useful, when own rates of return are subject to exchange rate risk, as in Barnett (2003). Copyright Springer-Verlag Berlin Heidelberg 2005

Keywords: User costs; Monetary aggregation; Risk; Pricing kernel; CAPM; E41; G12; C43; C22 (search for similar items in EconPapers)
Date: 2005
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Related works:
Working Paper: On User Costs of Risky Monetary Assets (2004)
Working Paper: On user costs of risy monetary assets (2004)
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