The GEL estimates resolve the risk-free rate puzzle in Japan

Mikio Itou, Akihiko Noda

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish
Pages (from-to)365-374
Number of pages10
JournalApplied Financial Economics
Volume22
Issue number5
DOIs
Publication statusPublished - 2012 Mar

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Generalized empirical likelihood
Japan
Risk-free rate puzzle
Mean squared error
Capital asset pricing model
Discount factor
Asymptotic variance
Likelihood estimation
Financial markets
Risk aversion

Keywords

  • CCAPM
  • GEL
  • GMM
  • higher order biases
  • risk-free rate puzzle

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

The GEL estimates resolve the risk-free rate puzzle in Japan. / Itou, Mikio; Noda, Akihiko.

In: Applied Financial Economics, Vol. 22, No. 5, 03.2012, p. 365-374.

Research output: Contribution to journalArticle

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