Evidence that risk adjustment is unnecessary in estimates of the User cost of money

Investors value the special attributes of monetary assets (e.g., exchangeability, liquidity, and safety) and pay a premium for holding them in the form of a lower return rate -- The user cost of holding monetary assets can be measured approximately by the difference between the returns on illiquid risky assets and those of safer liquid assets -- A more appropriate measure should adjust this difference by the differential risk of the assets in question -- We investigate the impact that time non-separable preferences has on the estimation of the risk-adjusted user cost of money -- Using U.K. data from 1965Q1 to 2011Q1, we estimate a habit-based asset pricing model with money in the utility function and find that the risk adjustment for risky monetary assets is negligible -- Thus, researchers can dispense with risk adjusting the user cost of money in constructing monetary aggregate indexes

• Autores: Restrepo-Tobón, Diego A.
• Fecha de publicación: 2015
• Institución: Universidad EAFIT
• Repositorio: Repositorio EAFIT
• Idioma: eng
• OAI Identifier: oai:repository.eafit.edu.co:10784/9163
• Acceso en línea: http://hdl.handle.net/10784/9163
• Palabra clave: E41; E51; G12; Formación de hábitos; Costo de uso; MONEDA; MODELOS DE VALORACIÓN DE ACTIVOS DE CAPITAL; LIQUIDEZ; ANÁLISIS DE VALORES (CONTROL DE COSTOS); Money; Capital assets pricing models; Liquidity (economics); Value analysis (Cost control)
• License: Copyright (c) 2015 Diego A. Restrepo-Tobón