The Equity Premium and the Risk Free Rate: A Cross Country, Cross Maturity Examination

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The Equity Premium and the Risk Free Rate: A Cross Country, Cross Maturity Examination

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Fabio Canova ()
Gianni De Nicolo

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Fabio Canova

Abstract

This 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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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 136.

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Date of creation: Apr 1995
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Handle: RePEc:upf:upfgen:136

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Paper
- 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. [Downloadable!] (restricted)

Cited by:
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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. [Downloadable!]
Luisa Fuster, 1995. "Altruism, Uncertain Lifetime, and the Distribution of Wealth," Economics Working Papers 150, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
José V. Rodríguez Mora, 1995. "Shared Knowledge," Economics Working Papers 144, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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]. [Downloadable!]
Other versions:
- Cysne, Rubens Penha, 2005. "Equity-Premium Puzzle: Evidence From Brazilian Data," Economics Working Papers (Ensaios Economicos da EPGE) 586, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
Alfonso Novales, 2002. "The Role of Simulation Methods in Macroeconomics," Documentos del Instituto Complutense de AnÃ¡lisis EconÃ³mico 0227, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales. [Downloadable!]
Other versions:
- Alfonso Novales, 2000. "The role of simulation methods in Macroeconomics," Spanish Economic Review, Springer, vol. 2(3), pages 155-181. [Downloadable!] (restricted)
Antonio Ciccone & Kiminori Matsuyama, 1995. "Start-up Costs and Pecuniary Externalities as Barriers to Economic Development," Economics Working Papers 142, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
Other versions:
- Antonio Ciccone & Kiminori Matsuyama, 1993. "Start-up costs and pecuniary externalities as barriers to economic development," Discussion Paper / Institute for Empirical Macroeconomics 83, Federal Reserve Bank of Minneapolis. [Downloadable!]
- Antonio Ciccone & Kiminori Matsuyama, 1992. "Start-up Costs and Pecuniary Externalities as Barriers to Economic Development," Discussion Papers 1031, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
- Antonio Ciccone & Kiminori Matsuyama, 1993. "Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development," NBER Working Papers 4363, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Cissone, A. & Matsuyama, K., 1992. "Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development," Papers e-92-14, Stanford - Hoover Institution.
- Ciccone, A. & Matsuyama, K., 1993. "Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development," Papers 533, Stockholm - International Economic Studies.
- Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April. [Downloadable!] (restricted)
Nir Dagan, 1994. "Recontracting and Competition," Economics Working Papers 152, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1996. [Downloadable!]
Other versions:
- Nir Dagan, 1996. "Recontracting and Competition," Economic theory and game theory 013, Nir Dagan, revised Jun 1996. [Downloadable!]
Daron Acemoglu & Fabrizio Zilibotti, 1996. "Agency Costs in the Process of Development," Economics Working Papers 157, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
Other versions:
- Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Agency costs in the process of development," Seminar Papers 607, Stockholm University, Institute for International Economic Studies. [Downloadable!]
- Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Agency Costs in the Process of Development," CEPR Discussion Papers 1421, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Acemoglu, D & Zilibotti, F, 1996. "Agency Costs in the Process of Development," Papers 607, Stockholm - International Economic Studies.
- Acemoglu, D. & Zilibotti, F., 1996. "Agency Costs in the Process of Development," Working papers 96-8, Massachusetts Institute of Technology (MIT), Department of Economics.

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