One of the innovative and successful new markets developed in recent years has been the registered exchange for the trading of option contracts. Key innovations provided by the option exchanges include the standardization of some contractual terms and the creation of a central clearing corporation to serve as issuer and obligor of each option contract, thus severing the contractual link between a specific option writer and buyer. These changes have facilitated the trading of existing call options in the secondary market and have provided increased liquidity, continuous public reporting of prices, better information on trading volume and open positions, and reduced transaction costs.

Within the past decade, considerable progress has been made in measuring ex post portfolio performance. The two parameter risk-return dimension of investment performance as pioneered by Markowitz has been reduced to a single parameter which incorporates measures of both risk and return. Several different but related one-parameter measures of performance have been developed, notably by Sharpe [8], Treynor [11], and Jensen [3], and are commonly referred to as composite performance measures. Theoretically, the composite measures allow portfolios with different risks and returns to be compared directly.

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.

Robert C. Klemkosky, Donald L. Tuttle, A Ranking of Doctoral Programs by Financial Research Contributions of Graduates, The Journal of Financial and Quantitative Analysis, Vol. 12, No. 3 (Sep., 1977), pp. 491-497