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

• Autores: Mikio Ito, Akihiko Noda
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 22, Nº. 4-6, 2012, págs. 365-374
• Idioma: inglés
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• Resumen

  • 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