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The Properties of the Equity Premium and the Risk-Free Rate: An Investigation Across Time and Countries Fabio Canova and Gianni De Nicoló Full Text of this Article (PDF 236K) Abstract:
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.
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