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The GEL estimates resolve the risk-free rate puzzle in Japan


  • Mikio Ito
  • Akihiko Noda


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.

Suggested Citation

  • Mikio Ito & Akihiko Noda, 2012. "The GEL estimates resolve the risk-free rate puzzle in Japan," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 365-374, March.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:5:p:365-374
    DOI: 10.1080/09603107.2011.613761

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