The CAPM Risk Adjustment Needed for Exact Aggregation over Financial Assets

William Barnett (), Yi Liu, Haiyang Xu and Mark J. Jensen ()
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Yi Liu: University of South Alabama
Haiyang Xu: Monash University

Econometrics from EconWPA

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.

Keywords: velocity; money; index; Divisia; risk (search for similar items in EconPapers)
JEL-codes: E41 G12 C43 C22 (search for similar items in EconPapers)
Date: Written
Note: Type of Document - Microsoft Word; prepared on Macintosh; to print on PostScript; pages: 46 ; figures: request from authors. See

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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:9602003

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