Multicountry Comparisons of the Consumption Based Capital Asset Pricing Model: Germany, Japan, and U.S.A.
Posted: 7 Sep 1999
Date Written: July 1994
Using a newly constructed data-set from original sources, Consumption Based Capital Asset Pricing Model (CCAPM) tests across developed nations (Japan, USA and Germany) in three continents (Asia, America, Europe) reveal very similar results on model performance. The study uses quarterly data over a longer time span than previous studies. The results and test procedure are consistent with those in an earlier study over a shorter period by Hansen- Singleton (1982). The parameter estimates of the discount factor and the coefficient of relative risk-aversion are strikingly similar across the three countries. The study finds the existence of an equity-premium. Moreover the fact that the equity- premium remains unexplained by CCAPM i.e; a puzzle, is another interesting finding. The study finds no stronger support in Japan for the model than in the US as claimed in a paper by Hamori (1992). This is consistent with the view that a combination of frictions and different utility specifications may be more consistent with international evidence. Higher order moments and other aspects of consumption data in these countries are also being studied in further work.
JEL Classification: C13, C32, G12, E21
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