TY  - JOUR
AU  - Cohen,Randolph B.
AU  - Polk,Christopher
AU  - Vuolteenaho,Tuomo
TI  - Money Illusion in the Stock Market: The Modigliani-Cohn Hypothesis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11018
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11018
L1  - http://www.nber.org/papers/w11018.pdf
N1  - Author contact info:
Randolph Cohen
MIT
E-Mail: rbcohen@mit.edu

Christopher Polk
Department of Finance
London School of Economics
Houghton St.
London WC2A 2AE
UK
Tel: +44 (0)20 7849 4917
Fax: +44 (0)20 7852 3580
E-Mail: c.polk@lse.ac.uk

Tuomo Vuolteenaho
Arrowstreet Capital
200 Clarendon Street #30
Boston, MA 02116-5021
Tel: 617/496-6284
Fax: 617/495-8570
E-Mail: tvuolteenaho@arrowstreetcapital.com
AB  - Modigliani and Cohn [1979] hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has implications for the pricing of risky stocks relative to safe stocks. Simultaneously examining the pricing of Treasury bills, safe stocks, and risky stocks allows us to distinguish money illusion from any change in the attitudes of investors towards risk. Our empirical resuts support the hypothesis that the stock market suffers from money illusion.
ER  -