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A solution to the equity premium and riskfree rate puzzles: an empirical investigation using Japanese data

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  • Atsushi Maki
  • Tadashi Sonoda

Abstract

The objective of the present analysis is to focus on the equity premium and risk-free rate puzzles. The Hansen and Singleton model applied to the Japanese data fails to explain the equity premium which exists between risky and secure assets, while the trading costs model can satisfactorily explain the equity premium puzzle. Furthermore, the trading costs model can predict a level of return on secure assets, so that the risk-free rate puzzle also can be solved empirically.

Suggested Citation

  • Atsushi Maki & Tadashi Sonoda, 2002. "A solution to the equity premium and riskfree rate puzzles: an empirical investigation using Japanese data," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 601-612.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:8:p:601-612
    DOI: 10.1080/09603100010014492
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    Cited by:

    1. Mikio Ito & Akihiko Noda, 2010. "The GEL Estimates Resolve the Risk-free Rate Puzzle in Japan," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-007, Keio/Kyoto Joint Global COE Program.
    2. Raymund Abara, 2006. "Estimation and evaluation of asset pricing models with habit formation using Philippine data," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 493-497.
    3. Samih Azar, 2011. "Retesting the CCAPM Euler equations," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 7(4), pages 324-346, September.
    4. Philip Jagd & Jakob Madsen, 2009. "Myopic loss aversion, bond returns and the equity premium puzzle," Applied Financial Economics, Taylor & Francis Journals, vol. 19(17), pages 1383-1390.

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