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Alex K
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2005-2008 - Associate at UFG Capital Partners (mid-sized CIS private equity fund) 2011-2013 - Investment manager at Vnesheconombank Group, direct investments division 2013- p.t. - Investment Director at GVA Capital (mid-sized family office)
  • The Velocity Of Money And The Stock Market 0 comments
    Aug 13, 2014 6:29 PM

    Fisher's equation of exchange is widely known among economists and financiers:

    MV = PT

    Where:
    M = Money Suppy
    V = Velocity of Circulation
    P = Average Price Level
    T = Volume of Transactions of Goods and Services

    For more than 100 years, there were other versions of the equation of exchange, e.g.:

    PT = CV+M'V'+M"V"

    Where: CV, M'V' and M"V" represent the products of currency, transaction money, non-transaction money and respective velocities. (Jiang Tao, 2001)

    At the same time, a number of studies, e.g., Christian Dreger and Jürgen Wolters (2008) identified the relationship between the velocity of money and the prices of assets (real estate and stocks)

    Given this relationship, Fischer's equation (in my humble opinion) could be modified and represented as the system of equations:

    M*(1-a)*V=PT

    M*a*Va=PA

    Where:

    а - share of money invested in financial and real assets (including real estate and stocks)

    Va - velocity of money in asset markets

    PA - value of transactions of different asset classes

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