Critical Finance Review > Vol 6 > Issue 2

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

Nicola Borri, LUISS University, Italy, nborri@luiss.it Giuseppe Ragusa, LUISS University, Italy, gragusa@luiss.it
 
Suggested Citation
Nicola Borri and Giuseppe Ragusa (2017), "Sensitivity, Moment Conditions, and the Risk-Free Rate in Yogo (2006)", Critical Finance Review: Vol. 6: No. 2, pp 381-393. http://dx.doi.org/10.1561/104.00000050

Published: 05 Sep 2017
© 2017 N. Borri and G. Ragusa
 
Subjects
 
Keywords
G12G58
Equity premiumNonlinear GMM estimationDurable model
 

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In this article:
1. The Model
2. Replication of the Estimation and Testing of the Modeln
3. Conclusion
Appendix
References

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.

DOI:10.1561/104.00000050

Replication Data | 104.00000050_supp.zip (ZIP).

This file contains the data that is required to replicate the data on your own system.

DOI: 10.1561/104.00000050_supp