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The GEL Estimates Resolve the Risk-free Rate Puzzle in Japan

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Author Info

  • Mikio Ito

    (Faculty of Economics, Keio University)

  • Akihiko Noda

    (Keio Advanced Research Centers, Keio University)

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.

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File URL: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/pdf/dp/DP2010-007.pdf
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Bibliographic Info

Paper provided by Keio/Kyoto Joint Global COE Program in its series Keio/Kyoto Joint Global COE Discussion Paper Series with number 2010-007.

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Length: 16 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:kei:dpaper:2010-007

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