A note on uncertainty, liquidity, and stock prices |
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Authors: | Marcelo Bianconi |
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Abstract: | This paper presents theory and some empirical evidence on the relationship between the demands for money and stocks and bonds in the presence of changes in the volatility of money growth. Theoretically, it is shown that with variable velocity, an increase in the conditional variance of money growth triggers an increase in the demand for money relative to stocks and bonds with a consequent reduction in stock and bond prices. Empirically, the model only performs well in the dimension of stocks and bond prices moving in the same direction. |
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