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


  • Fabio Canova

    (International Monetary Fund)

  • Gianni De Nicoló

    (International Monetary Fund)


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

Suggested Citation

  • Fabio Canova & Gianni De Nicoló, 2003. "The Properties of the Equity Premium and the Risk-Free Rate: An Investigation Across Time and Countries," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 1-4.
  • Handle: RePEc:pal:imfstp:v:50:y:2003:i:2:p:4

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    References listed on IDEAS

    1. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc.
    2. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
    3. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    4. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, March.
    5. Roe, Alan R & Sowa, Nii K, 1997. "From Direct to Indirect Monetary Control in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 212-264, March.
    6. Drazen, Allan, 1985. "Tight money and inflation: Further Results," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 113-120, January.
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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.
    3. Marc Oliver Rieger & Thorsten Hens & Mei Wang, 2013. "International Evidence on the Equity Premium Puzzle and Time Discounting," Multinational Finance Journal, Multinational Finance Journal, vol. 17(3-4), pages 149-163, September.

    More about this item

    JEL classification:

    • 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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