Annals of Finance

, Volume 1, Issue 1, pp 35–50 | Cite as

On user costs of risky monetary assets

Article

Summary.

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).

Keywords or phrases:

User costs Monetary aggregation Risk Pricing kernel CAPM 

Jel Classification Numbers:

E41 G12 C43 C22 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2005

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of KansasLawrenceUSA

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