Annals of Finance

, Volume 3, Issue 4, pp 455–469 | Cite as

On the positive fundamental value of money with short-sale constraints

Research Article


This paper is concerned with the pricing of money in a framework with restrictions on trading, under an extension of the standard-asset pricing theory that recognizes both tangible and intangible returns. It is argued that the underlying motivations for demanding money give content to its fundamental value and the bubble component. This approach is illustrated by analyzing the case where no short-sales are allowed, as two examples from the literature are made used to assert that money is a pure pricing bubble. Owing to this setup exhibits technically incomplete financial markets, the fundamental value of money is not uniquely defined over the set of generalized state-price processes. Then, these examples are shown to comprise an extreme case, as money is a pure store of value for the state-prices chosen (i.e., it is a pricing bubble). Instead, the fundamental value of money can be positive for other state-prices, representing the role of money in the trading process. Therefore, money should not be considered the equivalent of a pure pricing bubble.


Money Short-sale constraints Fundamental value Asset pricing bubbles (Technically) incomplete financial markets Financial recognizability and insurance services 

JEL Classification Numbers

D52 E41 G12 


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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Dep. Fundamentos da Análise Económica e Historia e Institucións EconómicasUniversidade de VigoGalizaSpain

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