Skip to main content
Article thumbnail
Location of Repository

Money illusion in the stock market: The Modigliani-Cohn hypothesis

By Randolph B Cohen, Christopher Polk and Tuomo Vuolteenaho


Modigliani and Cohn 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 toward risk. Our empirical results support the hypothesis that the stock market suffers from money illusion

Topics: HB Economic Theory
Publisher: MIT Press
Year: 2005
DOI identifier: 10.1162/0033553053970133
OAI identifier:
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • (external link)
  • Suggested articles

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.