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The Properties of the Equity Premium and the Risk-Free Rate: An Investigation Across Time and Countries

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  • Fabio Canova

    (International Monetary Fund)

  • Gianni De Nicoló

    (International Monetary Fund)

Abstract

We examine the relationship between the equity premium and the risk-free rate over time for Group of Seven countries. We show the existence of subsample instabilities, cross-country differences, and examine whether a consumption-based CAPM model is able to explain the heterogeneity of the data when cross-country and time-series differences in technology parameters are accounted for. We demonstrate that the basic features of the equity premium and risk-free puzzles remain regardless of the sample period and the country considered. Modifications of the basic setup also fall short of providing an explanation for the puzzles. Copyright 2003, International Monetary Fund

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 50 (2003)
Issue (Month): 2 ()
Pages: 4

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Handle: RePEc:pal:imfstp:v:50:y:2003:i:2:p:4

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Cited by:
  1. van Ewijk, Casper & de Groot, Henri L.F. & Santing, A.J. (Coos), 2012. "A meta-analysis of the equity premium," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 819-830.
  2. Rieger, Marc Oliver & Wang, Mei, 2012. "Can ambiguity aversion solve the equity premium puzzle? Survey evidence from international data," Finance Research Letters, Elsevier, vol. 9(2), pages 63-72.

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