Volume 10, Issue 36 (6-2019)
jemr 2019, 10(36): 163-194 |
Back to browse issues page
Download citation:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
Roshan R. Investigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran. jemr 2019; 10 (36) :163-194
URL: http://jemr.khu.ac.ir/article-1-1791-en.html
URL: http://jemr.khu.ac.ir/article-1-1791-en.html
Persian Gulf University , re_roshan@yahoo.com
Abstract: (4968 Views)
In this paper, we try to develop and modify the basic model of the consumption-based capital asset pricing model by adding the growth in real money balances rate as a risk factor in the household's utility function as (M-CCAPM). For this purpose, two forms of utility function with constant relative risk aversion (CRRA) preferences and recursive preferences have been used such that M1 and M2 are considered as inputs in the utility function. After estimating the systems of Euler equations using generalized moments method, MSE, MAE, and HJ criteria were used to select the most suitable model for estimating the share of variable of real money balance. The above criteria show that the model with the input of liquidity (M2) and preferences with constant relative risk aversion is the most appropriate model. The results indicate that the share of real money balance in the utility function of Iranian households is statistically significant and is about 34%. Therefore, considering the contribution of the monetary variable to the utility function which is relatively significant, it is emphasized on its entry into the utility functions used in asset pricing models.
Keywords: Consumption-Based Capital Asset Pricing Models, Real Money Balance, Liquidity, Euler Equations, GMM
Type of Study: Applicable |
Subject:
پولی و مالی
Received: 2018/12/21 | Accepted: 2019/06/23 | Published: 2019/09/24
Received: 2018/12/21 | Accepted: 2019/06/23 | Published: 2019/09/24
References
1. Adegboye Abidemi (2017), The consumption-oriented capital asset price model in the Nigerian stock exchange, CBN Journal o Applied Statistics, 8(2).117-140.
2. Balvers J. Ronald, and Huang Dayong. (2009). Money and the C-CAPM, Journal of Financial and Quantitative Analysis, 44(2), 337-368. [DOI:10.1017/S0022109009090176]
3. Breeden, Douglas T. (1979). An intertemporal asset pricing model with stochastic consumption and investment opportunities, Journal of Financial Economics, 7, 265-296. [DOI:10.1016/0304-405X(79)90016-3]
4. Brock, W. A. (1974). Money and growth: The case of long run perfect foresight. International Economic Review, 15, 750-777. [DOI:10.2307/2525739]
5. Campbell Y. John, Giglio Stefan, Polk Christopher and Turleky (2018). An intertemporal CAPM with stochastic volatility, , Journal of Financial Economics, 128, 207-233. [DOI:10.1016/j.jfineco.2018.02.011]
6. Cochrane, J. (2008). A Cross-Sectional Test of an Investment-Based Asset Pricing Model. Journal of Political Economy, 104, 572-621. [DOI:10.1086/262034]
7. Epstein, L. and Zin, S. (1991). Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis. Journal of Political Economy, 99, 263-286. [DOI:10.1086/261750]
8. Epstein, Larry G, Zin. (1989). Substitution, Risk aversion and the temporal behavior of consumption and asset returns: A Theorical Framework. Econometrica, 57(4), 937-969. [DOI:10.2307/1913778]
9. Fama, E. F., and K. R. French. (1996). Multifactor Explanations of Asset Pricing Anomalies. Journal of Finance, 51, 55-84. [DOI:10.1111/j.1540-6261.1996.tb05202.x]
10. Froogh Nazhad H and Mirzaei M. (1392). Investigating the relationship between risk and return: Comparing the traditional capital asset pricing model with the pricing model of capital-based consumption assets, Journal of Securities Exchange, 6(23), 51-76.
11. Gomes, J., L. Kogan, and M. Yogo. (2009). Durability of output and expected stock returns. Journal of Political Economy, 117, 941-989. [DOI:10.1086/648882]
12. Gu, L., and D. Huang. (2013). Consumption, money, intratemporal substitution, and cross-sectional asset returns. Journal of Financial Research, 36, 115-146. [DOI:10.1111/j.1475-6803.2013.12005.x]
13. Hansen, Lars Peter, & Singleton, Keneth J. (1982). Generalized instrumental variables estimation of nonlinear rational expectations models. Econometrica, 50, 1269-1286. [DOI:10.2307/1911873]
14. Izadkhasti Hojjat (1397). Analyzing the Impact of Monetary Policy in a Dynamic General Equilibrium Model: Money in Utility Function Approach, Journal of Economic Modeling Research, 8(31),71-101.
15. Jagannathan, R., and Y. Wang. (2007). Lazy investors, discretionary consumption, and the cross-section of stock returns. Journal of Finance, 62, 1623-1661 [DOI:10.1111/j.1540-6261.2007.01253.x]
16. Kan Raymond, and Robotti Cesare. (2009). Model Comparison Using the Hansen-Jagannathan Distance. The Review of Financeial Studies, 22(9), 3449-3490. [DOI:10.1093/rfs/hhn094]
17. Kocherlakota, N., and L. Pistaferri. (2009). Asset pricing implication of Pareto optimality with private information. Journal of Political Economy, 117, 555-590. [DOI:10.1086/599761]
18. Obstfeld. M., and K. Rogoff. (1996). Foundations of international macroeconomics. MIT Press.
19. Lettau, M., and S. Ludvigson. (2009). Euler equation errors. Review of Economic Dynamics, 12, 255-283. [DOI:10.1016/j.red.2008.11.004]
20. Lioui, A., and P. Maio. (2014). Interest rate risk and the cross-section of stock return. Journal of Financial and Quantitative Analysis, 49(2), 83-511. [DOI:10.1017/S0022109014000131]
21. Liu Weinmin, Luo Di, and Zhao Huainan, (2016), Transaction Costs, Liquidity Risk, and the CCAPM. Journal of Banking & Finance, 63, 126-145. [DOI:10.1016/j.jbankfin.2015.11.011]
22. Lucas, Robert E., Jr. (1978). Asset prices in an exchange economy. Econometrica, 46, 1429-1445. [DOI:10.2307/1913837]
23. Lucas E. Robert and Stokey L. Nancy. (1987). Money and Interest in a Cash-in-Hand Economy. Econometrica, Econometric Society, 55(3), 491-513. [DOI:10.2307/1913597]
24. Lustig, H., and S. Van Nieuwerburgh. (2005). Housing collateral, consumption insurance, and risk premia: An empirical prespective. Journal of Finance, 60, 1167-1219. [DOI:10.1111/j.1540-6261.2005.00759.x]
25. Miralles Quiros Maria, Miralles Quiros Josea, and Oliveira Celia. (2017). The role of Liquidity in asset pricing: the special case of the Portuguese Stock Market. Journal of Economics, Finance and Administrative Sciense, 22(43), 191-206. [DOI:10.1108/JEFAS-12-2016-0001]
26. Maio Paulo.(2018). Does inflation explain equity risk premia?Available at SSRN: https://ssrn.com/abstract=3097493. [DOI:10.2139/ssrn.3307627]
27. Maio Paulo, Silva C. Andre. (2018). Asset pricing implications of new evidence. Available at SSRN: https://ssrn.com/abstract=2388879
28. Mehra, Rajnish, & Edward C Prescott, E. C. (1985). The equity premium: A puzzle. Journal of Monetary Economics, 15, 145-161. [DOI:10.1016/0304-3932(85)90061-3]
29. Merton, R. C. (1971). Optimal consumption and portfolio rules in a continuous-time model. Journal of Economic Theory, 3, 373-413. [DOI:10.1016/0022-0531(71)90038-X]
30. Mohammadzadeh Azam , Shahyaki tash Mohammad nabi , Roshan Reza )1395), Adjusted Consumption Capital Asset Pricing Model, According to the Marshall Preferences (Case Study: Iran), Journal of Economic Modeling Research, 7(25),7-22. [DOI:10.18869/acadpub.jemr.7.25.7]
31. Parker, J., and C. Julliard. (2005). Consumption risk and the cross section of expected returns. Journal of Political Economy, 113, 185-222. [DOI:10.1086/426042]
32. Savov, A.. (2011). Asset pricing with garbage. Journal of Finance, 66, 177-201. [DOI:10.1111/j.1540-6261.2010.01629.x]
33. Sidrauski, Miguel. (1967). Rational choice and patterns of growth in a monetary economy. American Economic Review, 57, 534-544.
34. Weil, P. (1989). The equity premium puzzle and the risk-free rate puzzle. Journal of Monetary Economics, 24, 401-421. [DOI:10.1016/0304-3932(89)90028-7]
35. Weil, P. (1990). Nonexpected Utility in Macroeconomics, Quarterly Journal of Economics, 105, 29-42. [DOI:10.2307/2937817]
36. Yogo, M. (2006). A consumption-based explanation of expected stock returns. Journal of Finance, 61, 539-580. [DOI:10.1111/j.1540-6261.2006.00848.x]
37. Zhang Lu. (2017). the Investment CAPM. European Financial Management, 9999(9999), 1-59. [DOI:10.3386/w23226]
Send email to the article author
| Rights and permissions | |
 | This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. |
