The equity premium and the risk free rate: A cross country, cross maturity examination
AbstractThis paper examines the relationship between the equity premium and the risk free rate at three different maturities using post 1973 data for a panel of 7 OECD countries. We show the existence of subsample instabilities, of some cross country differences and of inconsistencies with the expectations theory of the term structure. We perform simulations using a standard consumption based CAPM model and demonstrate that the basic features of Mehra and Prescott's (1985) puzzle remain, regardless of the time period, the investment maturity and the country considered. Modifications of the basic setup are also considered.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 136.
Date of creation: Apr 1995
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Web page: http://www.econ.upf.edu/
Other versions of this item:
- Canova, Fabio & de Nicolo, Gianni, 1995. "The Equity Premium and the Risk Free Rate: A Cross Country, Cross Maturity Examination," CEPR Discussion Papers 1119, C.E.P.R. Discussion Papers.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Fabio Canova & Eva Ortega, 1996. "Testing calibrated general equilibrium models," Economics Working Papers 166, Department of Economics and Business, Universitat Pompeu Fabra.
- Rubens Penha Cysne, 2005.
"Equity-Premium Puzzle: Evidence From Brazilian Data,"
Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting]
088, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Cysne, Rubens Penha, 2005. "Equity-Premium Puzzle: Evidence From Brazilian Data," Economics Working Papers (Ensaios Economicos da EPGE) 586, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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