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

Mikio Ito and Akihiko Noda

Applied Financial Economics, 2012, vol. 22, issue 5, 365-374

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.

Date: 2012
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Working Paper: The GEL Estimates Resolve the Risk-free Rate Puzzle in Japan (2010)
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DOI: 10.1080/09603107.2011.613761

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