Evidencia de que no es necesario ajustar por riesgo al estimar el costo de uso del dinero
| Autor | Diego A. Restrepo-Tobón |
| Páginas | 50-70 |
Ecos de Economía: A Latin American Journal of Applied Economics | Vol. 19 | No. 41 | 2015
ISSN 1657-4206 e-ISSN 2462-8107 Vol. 19 No. 41 PP. 49-70
DOI:10.17230/ecos.2015.41.3
* Acknowledge financial support from the
Colombian Fulbright Commission, the
Colombian Administrative Department
of Science, Technology and Innovation
(Colciencias), and EAFIT University.
** Universidad EAFIT, Colombia.
Email address: drestr16@eafit.edu.co
Palabras clave: Dinero, costo
de uso, formación de hábitos,
valoración de activos.
Key words: Money, User cost,
Habit formation, Asset pricing.
JEL CODE: E41, E51, G12.
Received: 28/06/2015
Accepted: 20/10/2015
Published: 01/12/2015
EVIDENCE THAT
RISK
ADJUSTMENT
IS
UNNECESSARY
IN
ESTIMATES
OF THE
USER
COST OF MONEY*
Evidencia de que no es necesario ajustar por
riesgo al estimar el costo de uso del dinero
Diego A.
Restrepo-T
obón
**
Abstract
Investors value the special attributes of monetary assets (e.g., exchangeability,
liquidity, and safety) and pay a premium for holding them in the form of a
lower return rate. The user cost of holding monetary assets can be measured
approximately by the dierence between the returns on illiquid risky assets
and those of safer liquid assets. A more appropriate measure should adjust
this dierence by the dierential risk of the assets in question. We investigate
the impact that time non-separable preferences has on the estimation of the
risk-adjusted user cost of money. Using U.K. data from Q to Q, we
estimate a habit-based asset pricing model with money in the utility function
and find that the risk adjustment for risky monetary assets is negligible. Thus,
researchers can dispense with risk adjusting the user cost of money in cons-
tructing monetary aggregate indexes.
Resumen:
Los inversionistas valoran los atributos especiales de los activos monetarios
(e.g., intercambiabilidad, liquidez y bajo riesgo) y pagan una prima de riesgo al
invertir en ellos al aceptar una rentabilidad menor. El costo de uso de activos
monetarios puede ser medido de forma aproximada por la diferencia entre el
rendimiento de activos ilíquidos riesgosos y activos líquidos de bajos riesgo.
Una mejor medida debería ajustar dicha diferencia por el riesgo relativo entre
estas dos clases de activos. En este artículo, nosotros investigamos el impacto
que dicho ajuste por riesgo tiene en los valores estimados del costo de uso de
activos monetarios. Usando datos para el Reino Unido entre Q y Q,
Evidence that Risk Adjustment is Unnecessary in Estimates of the User Cost of Money*
PP 51 | 70
Ecos de Economía: A Latin American Journal of Applied Economics | Vol. 19 | No. 41 | 2015
nosotros estimamos un modelo de valoración de activos de capital con formación de hábitos y
dinero en la función de utilidad. Nuestros resultados empíricos indican que el ajuste por riesgo de
activos monetarios es económicamente insignificante. De esta manera, realizar ajustes por riesgo
a dichas estimaciones es innecesario.
1.
Introduction
Monetary assets, like cash, are accepted in exchange, are liquid, and safer than most assets in the
economy. Investors value the special attributes of monetary assets (e.g., exchangeability, liquidity,
and safety) and pay a premium for holding them in the form of a lower return rate. The implicit pre-
mium for holding monetary assets—called the user cost of money—equals the dierence between
the return rates of monetary assets and the unobserved return rates of such assets if they lacked
monetary attributes.
The user cost of money is a necessary input to estimate theoretically correct models of the demand
for money. Barnett () pioneered the formula to quantifying the user cost of money under cer-
tainty and Barnett, Liu, and Jensen () extended it to the uncertainty case. Under certainty, the
user cost of monetary assets is given by the discounted dierence between a benchmark rate and the
rate of return of the monetary asset. Under uncertainty, the user cost equals the certainty-equivalent
user cost plus a risk-adjustment that depends on investors’ risk aversion and the correlation between
the monetary asset return rate and consumption growth. The benchmark rates is the return rate on
an asset with highly valued monetary attributes (e.g., short-term risk-free assets).
When monetary assets’ return rates correlate positively (negatively) with consumption grow-
th, the user cost is higher (lower) that what it would be under certainty. Using models capturing
time separable preferences and simulated data, Barnett et al. () show that the gain from risk
adjusting Divisia monetary aggregates is small. The main reason is that under time separable pre-
ferences, monetary assets returns correlate poorly with consumption. In a recent work, however,
Barnett and Wu () conjecture that under time non-separable preferences the risk-adjustment
to the certainty-equivalent user cost will be bigger and of empirical relevance for the construction
of Divisia monetary aggregates.
Barnett and Wu () derive expressions for estimating the user cost of risky monetary assets
assuming time non-separable preferences and show that under uncertainty any asset can be used as
the benchmark asset in the estimation of the user cost of money. However, the extent to which time
non-separable preferences yield higher risk adjustment estimates and the robustness of the results
to the choice of arbitrary benchmark rates remain empirical questions.
In this paper, we contribute to the literature on the user cost of money by testing the hypotheses
in Barnett and Wu (). We use U.K. data from Q to Q to estimate a habit-based asset
pricing model using the market portfolio (proxied by the FTSE ) and six industrial sectors portfolios.
We also test the model using six Fama-French portfolios sorted by size and book-to-market values from
Q to Q. For both samples, we find that the model is not rejected by the data in the sense
that pricing errors are small. The estimated parameters are reasonable and in line with the literature.
Consistent with Barnett et al. (), we find that the risk-adjustment is negligible. The reason is
that the risk-adjustment depends on the covariance between monetary assets returns and the SDF;
which is almost zero across the monetary assets we consider. Thus, time non-separable preferences
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