We show the nonexistence of the well-known risk-free rate puzzle in the Japanese financial markets. This result crucially depends on the accurate estimates of the two basic parameters: the subjective discount factor and the degree of risk aversion, appearing in the standard Consumption-based Capital Asset Pricing Model (CCAPM). We estimate these parameters by the recently developed method, Generalized Empirical Likelihood (GEL) estimation; we also confirm our results by comparing Mean Squared Errors (MSEs) based on higher order biases and first order asymptotic variances of the estimates.
|Number of pages||10|
|Journal||Applied Financial Economics|
|Publication status||Published - 2012 Mar|
- higher order biases
- risk-free rate puzzle
ASJC Scopus subject areas
- Economics and Econometrics