The Theoretical and Empirical Implications of Money in Asset Pricing Models With Special Reference to the Equity Premium.
Date of Award
Doctor of Philosophy (PhD)
Glenn W. Boyle
This dissertation examines the role of money, monetary uncertainty, and monetary policy for the pricing of financial assets. The existing literature is extended in several ways. First, closed-form solutions for asset returns are obtained, thereby allowing analytical results to be derived. Second, nominal equity prices and returns are computed, thereby allowing problems associated with estimating inflation to be avoided. Furthermore, shifts in the money stock that result from changes in monetary regime are distinguished from those that result from changes in monetary uncertainty. The introduction of money leads to qualitative predictions about asset prices that differ from those obtained in a nonmonetary economy. Results indicate that the equity premium puzzle remains intact even after the introduction of monetary factors. It is shown that real and nominal equity returns are quantitatively insensitive to changes in monetary uncertainty. Nominal returns are sensitive to shifts in monetary regime, but real returns are not. Furthermore, the correlation coefficient between real equity returns and inflation is sensitive to changes in both monetary uncertainty and the monetary regime.
Peterson, James Daniel, "The Theoretical and Empirical Implications of Money in Asset Pricing Models With Special Reference to the Equity Premium." (1990). LSU Historical Dissertations and Theses. 4941.