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The Monetary Impact on Return Variability and Market Risk Premia

Published online by Cambridge University Press:  06 April 2009

Robert C. Klemkosky  and
Kwang W. Jun
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Extract

As an extension of previous works, we develop a theoretical framework for the relationship between monetary changes and market risk premia. The wealth effect and the return variability effect of money are shown to be the two important channels of the monetary impact on the market risk premium for three representative classes of utility functions. The theory also states that the market risk premium will be an increasing function of monetary changes given that the two component effects of money are positive.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 17 , Issue 5 , December 1982 , pp. 663 - 681
Copyright
Copyright © School of Business Administration, University of Washington 1982

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