Sensitivity, Moment Conditions, and the Risk-free Rate in Yogo (2006)

Critical Finance Review, Vol.6 No.2 2017

14 Pages Posted: 22 Oct 2016 Last revised: 14 Nov 2018

See all articles by Nicola Borri

Nicola Borri

LUISS University - Department of Economics and Finance

Giuseppe Ragusa

LUISS Guido Carli University

Date Written: November 4, 2016

Abstract

In this paper we show that results presented in the seminal paper by Yogo, A Consumption Based Explanation of Expected Stock Returns, cannot be replicated. We find different estimates for the parameters and we obtain values of over-identified statistics that being much larger than those in the original paper indicate rejection of the durable consumption asset pricing model. By careful inspection of Yogo’s replication files, we were able to track down the inconsistency to a coding bug. The rejection of the durable model is exemplified by its inability to simultaneously explain the risk-free rate and excess stock returns.

Keywords: nonlinear GMM estimation, equity premium, durable model, yogo, gauss

JEL Classification: G12, C58

Suggested Citation

Borri, Nicola and Ragusa, Giuseppe, Sensitivity, Moment Conditions, and the Risk-free Rate in Yogo (2006) (November 4, 2016). Critical Finance Review, Vol.6 No.2 2017. Available at SSRN: https://ssrn.com/abstract=2855792 or http://dx.doi.org/10.2139/ssrn.2855792

Nicola Borri (Contact Author)

LUISS University - Department of Economics and Finance ( email )

viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/borri/

Giuseppe Ragusa

LUISS Guido Carli University ( email )

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