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

Fabio Canova and Gianni de Nicolò

No 1119, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 seven 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 set-up are also considered.

Keywords: Calibration; Consumption Based CAPM; Equity Premium; Model Evaluation; Risk Free Rate; Term Structure (search for similar items in EconPapers)
JEL-codes: C15 E43 G12 (search for similar items in EconPapers)
Date: 1995-01
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1119 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1119

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1119
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).